11 – Structural Implementation

Introduction

A firm must have an adequate organisational structure to implement its plan correctly. An organisational structure is a set of formal responsibilities and reporting linkages that serve as a framework for internal management and coordination. An organisational chart is a graphic representation of an organisational structure. An organisational structure’s objective is to coordinate and integrate the efforts of personnel at all levels—corporate, business, and functional—so that they work together to achieve a specified set of strategies.

Managers use organisational structure to harness resources to get things done.

It is defined as:

1. The set of formal tasks assigned to individuals and
departments.
2. Formal reporting relationships, including lines of authority,
responsibility, number of hierarchical levels and span of
manager’s control.
3. The design of systems ensures effective employee coordination across departments. The set of formal tasks and
relationships provides a framework for vertical
control of the organisation.

The organisational structure is divided into two parts:

1. Superstructure:

The most apparent aspect of the organizational structure is the superstructure. This displays how people are organized into divisions, departments, and sectors and how they are related to one another. The superstructure also denotes the primary means by which organizational processes are integrated and coordinated. By displaying their levels, it is possible to determine which groups are more strategically important than others.

2. Infrastructure:

This is a less apparent component of the organisational structure. It deals with delegation of authority, specialisation, communication, information systems, and procedures. The infrastructure enables the organisation to engage in various activities while synchronising them.

The design of an organization’s organizational structure is a significant undertaking for its senior management. It serves as the organization’s skeleton and provides greater long-term organizational arrangements and partnerships.

Thus, an organisational structure satisfies two essential and opposing requirements:

-Separation of labour into distinct tasks

-Coordinate various responsibilities to provide efficient organisational control.

However, when an organisation grows and becomes more complicated, necessary changes in its architecture are required.

11.1 Fundamental Organizational Structure Principles

Before constructing an organization’s structure, several important organisational principles must be recognised. They are as follows:

1. Hierarchy:

The hierarchical structure defines the scope of control and who reports to whom. The number of people reporting to a supervisor is called the span of control. It governs how closely a supervisor can keep an eye on subordinates. Tall structures have a complex hierarchy and a narrow span. It becomes tough to communicate up and down the hierarchy. Flat structures are distributed horizontally and have fewer levels in the hierarchy. In recent years, the tendency has been toward flat structures with wider spans of control to permit more excellent communication and coordination.

2. Chain of Command:

A chain of command is an uninterrupted line of authority that connects all individuals in an organisation and demonstrates who reports to whom. It is founded on two guiding concepts. The term “unity of command” refers to each employee reporting to only one supervisor. The scalar principle refers to an organization’s clearly defined line of power. Various tasks should have different levels of authority and responsibility. Everyone in the organisation should be aware of who reports to whom and the successive management levels to the top.

3. Specialization:

The degree to which organisational responsibilities are broken into discrete occupations is called specialisation, also known as division of labour. Allowing people to specialise will enable them to do their jobs more efficiently. This is because an employee in each department only does work related to his or her specialised function. Despite the apparent benefits of specialisation, many organisations are abandoning it. Overly specialised employees are isolated and only conduct a single, monotonous task. As a result, many businesses are expanding jobs to create more difficulties or assigning duties to teams so that individuals can rotate among the team’s multiple jobs.

4. Authority, Responsibility, and Delegation:

Authority is a manager’s formal and legal right to make decisions, issue instructions, assign resources, and command obedience. The duty to complete the work or activity an employee has been assigned is called responsibility. Accountability requires those in positions of authority and responsibility to report and justify task outcomes to those in positions of power and responsibility above them in the chain of command. Most organisations today encourage managers to delegate responsibility to the lowest feasible level to provide the most excellent flexibility in meeting customer requests and adapting to the environment. Managers are urged to delegate authority, even though it is often difficult for them to do so.

5. Centralization and Decentralization:

These terms refer to the level at which choices are made. Decisions are made at the highest levels of the organisation as a result of centralization. Decentralization implies that decision-making is delegated to lower levels of the organisation. Centralization improves coordination, but too much centralization slows response times and demotivates lower-level personnel. Decentralization reduces the strain on top management, makes better use of workers’ abilities, assures well-informed decision-making, and allows for rapid response to external developments. However, this does not imply that every organisation should decentralise. Managers must assess the organisational situation and determine the decision-making level.

6. Formalization:

The extent to which written documentation is employed to instruct and regulate staff is formalisation. Rules, regulations, policies, procedures, and job descriptions are examples of written documentation. They are low-cost methods of coordinating activities. These documents supplement the organisational structure by outlining tasks, responsibilities, and authority. The use of rules and regulations is part of the bureaucratic organisational model. Narrowly defined job descriptions, for example, tend to hinder the creativity, flexibility, and speed with which today’s knowledge-based organisations require. Today, many organisations are eliminating formalisation and bureaucracy.

7. Departmentalization:

Another essential feature of organisational structure is departmentalization, which refers to grouping positions into departments and departments into the overall organisation.

11.2 Relation between Strategy and Structure

Strategic management holds that the firm’s strategy and organisational structure must be compatible. Alfred Chandler concluded that structure follows strategy in a famous study of significant U.S. firms such as DuPont, General Motors, Sears, and Standard Oil. This means that changes in company strategy result in organisational structure adjustments. He also found that as organisations grow, they transition from one type of structural arrangement to another. Chandler states these structural adjustments are necessary since the previous framework was inadequate. As a result, Chandler postulated the following sequence of events:

1. New strategy is created
2. New administrative problems emerge
3. Economic performance declines
4. A new appropriate structure is invented
5. Profit returns to its previous level

Chandler discovered that in their early years, firms like DuPont and General Motors had centralised functional structures only suitable for a narrow variety of products. The original structure grew too complex as they added new product lines and established distribution networks. As a result, they adopted a decentralised organisation with multiple autonomous departments.

11.3 Improving the Efficacy of Traditional Organizational Structures

Traditional organisational structures are collapsing under the weight of ever-increasing laws that require greater responsibility and transparency in changing times and situations. Smart businesses are pioneering the development of new and enhanced structures to support and enhance this new compliance environment, and best practices are emerging.

Various factors, including technology, size, environment, and strategy, influence an organisation’s ideal structure. Structures frequently evolve as an organisation progresses from one growth stage to the next. The external and internal environments have various effects on structure design.

-A company that operates in a stable environment may employ a functional structure.

A volatile environment necessitates quick response, flexibility, and decision-making. Developing a divisional or matrix organisation can better satisfy these requirements.

-According to Mintzberg, four significant environmental variables determine structure.

Environmental Types and their Impact on Organisational Structure

1. Rate of Change:

When operating in a more dynamic environment, the organisation must respond swiftly to rapid changes. Change in static environments is sluggish and predictable, requiring minor sensitivity on the part of the organisation. In dynamic circumstances, the organisational structure and its employees must be adaptable, well-coordinated, and capable of responding quickly to external stimuli. The dynamic environment necessitates a more adaptable, organic structure.

2. Degree of Complexity:

In some situations, a few essential data moves can readily be monitored. Others are extremely complicated, with numerous influences interacting in intricate ways. Decentralizing choices in that specific area is one way of simplifying the complexity. A decentralised structure is usually advantageous in a complex environment.

3. Market Complexity:

Some businesses sell a single product or variations on a single product. Others sell a wide selection of fundamentally diverse things. As markets become increasingly diversified, there is usually a need to divide the organization, as long as synergy or economies of scale are not jeopardised.

4. Competitive Situations:

When facing friendly rivals, there is no reason to seek the safety of the centre. However, in really hostile circumstances, more resources and even legal protection may be required; these are usually more easily provided by central headquarters. As markets become more hostile, organisations tend to become more centralised.

Traditional organisational systems can be more successful by regularly revising and developing individuals’ skill sets. Change can be more harmful than ever if it is not managed effectively. Management must identify those employees who are top performers and can reflect, explore, evaluate, and act. Management must establish a new focus on connecting people’s heads, hearts, and hands in the organisation. One major issue could be strategy implementation. Management and team leaders must learn to motivate others and develop an effective team.

Structural adjustments are required to improve the organization’s competitive position, focus on client needs, and progress in development and sustainability programmes. Reorganization may sometimes be necessary to offer a foundation for long-term commitment to organisational aims and vision.

Management should push the entire organisation, particularly subunits, to form work teams to guarantee that each sector integrates people and services into a cohesive, focused business unit. Consultation and involvement should be integrated into the programme to ensure the successful formulation and implementation of organisational goals and objectives.

Each work team should be urged to design an effective procedure for discussing the organization’s significant challenges and possibilities over the next decade. Then, updated strategic plans should be prepared. These plans should serve as the foundation for directing organisational resources to the most strategic areas in a staged manner. Work teams at all levels of management should then implement updated plans. Work-team objectives must contain the following:

-Consultation with all levels of personnel

-Creating and implementing a strategy for developing goals and objectives for the organisation and unit; a five to ten-year strategic plan

-Define and clarify organisational structures, as well as identify functions, customers, and service delivery models

-Identifying the modifications and staged techniques required to transition from the current situation to what will be needed for the next three to five years.

-Identifying and advocating policy and programme development priorities

-Including objectives for cost-cutting, service quality improvement, personnel management, accountability, technology, and business process improvement.

11.4 Types of Organisational Structures

Organizational structures are classified into seven types:

1. Simple structure
2. Functional structure
3. Divisional structure
4. SBU structure
5. Matrix structure
6. Network structure
7. Virtual structure

Let us take a quick look at each of them.

1. Simple Structure:

In this structure, the owner-manager oversees all activities and makes all decisions. This structure may be suited for small and new businesses. Direct supervision is used to coordinate tasks. Tasks are not specialised, there are few norms and regulations, and communication is informal. Small enterprises, such as mom-and-pop shops and small eateries, have a straightforward organizational structure.

2. Functional Structure:

Functional structures are classified according to the principal roles they perform. A functional specialist is in charge of each function. Functional structures form in organisations with a single or closely linked product or service. For example, a small business with a single product line could begin manufacturing the components needed for product manufacture rather than sourcing them from a third party. This is advantageous not just to the organization but also to the employees’ faith.

3. Divisional Structure:

A variety of organisations adopt divisional arrangements. Divisions are constructed as self-contained units in a divisional system, with different functional departments for each division. A division can be organised based on geography, products, customers, etc. The headquarters defines company strategy, allocates resources among divisions, and appoints and rewards division heads. Each division is accountable for their division’s product, market, and financial objectives, as well as their division’s contribution to overall corporate performance. For instance, divisions can be classified from several perspectives. One could construct differences based on geography (for example, a US division and an EU division) or product or service offerings (different products for different customers: households or companies). In another case, a car firm with a divisional structure might have one division for SUVs, another for subcompact cars, and another for sedans.

4. SBU Structure:

A Strategic Business Unit, called an SBU, denotes an autonomously managed entity or division within a giant corporation. These units typically formulate their visions, missions, objectives, and strategic plans, distinct from other entities within the parent company. Their goals are unique, contributing significantly to the overall long-term performance of the business.

To put it succinctly, an SBU is a segment of a sizable corporation tasked with its specific planning processes. SBUs may encompass business divisions, product lines within a division, or particular products/services. Regardless of their nature, SBUs are designed to cater to a particular customer group or geographic area.

Despite operating independently, SBUs are obligated to provide regular updates on their progress and performance directly to the headquarters of the parent organization. Usually focused on a particular market or industry, SBUs assume responsibility for their strategic decisions and financial outcomes. They can manifest as divisions, teams, or entirely separate businesses. Furthermore, they may even function as integral components, such as marketing teams, supporting the operational functions of the entire company.

5. The Matrix Structure:

The matrix structure is essentially a hybrid of functional and divisional organisations. There are functional managers and product or project managers in this arrangement. Employees are responsible to one functional manager and one or more project managers. A product group, for example, wishes to create a new product. Personnel from functional divisions such as Finance, Production, Marketing, HR, Engineering, and so on are recruited for this project. For the length of the project, these individuals report to the product manager. As a result, they are accountable to two managers: the product manager and the functional area manager. While functional heads have vertical authority over functional managers, product or project heads have horizontal authority. As a result, the matrix form allows for dual reporting. The matrix structure is distinct due to the dual lines of authority. Companies such as IBM, Unilever, and Ford Motor Company have successfully employed the matrix structure. Starbucks is one of many large firms that has successfully established a matrix structure to support their targeted approach. Its organisational structure mixes functional and product-based divisions, with employees reporting to two executives. To foster a sense of community, the organisation empowers employees to make decisions and trains them in hard and soft skills. As a result, Starbucks is among the finest in terms of customer service.

6. Network Structure:

Many of a network organization’s key responsibilities are outsourced or subcontracted to independent entities coordinated from a tiny headquarters. Instead of being headquartered under one roof, functions like design, manufacturing, marketing, and distribution are outsourced to independent organisations electronically linked to the central office. For example, athletic shoe firms such as Nike and Reebok have outsourced shoe production to countries such as China and Indonesia, where labour prices are low. Nike and Reebok specialise in shoe design and marketing. The Internet and networked computer systems allow the organisation to exchange data and information. The organisation might be considered a hub surrounded by outside specialists. As the foregoing shows, the main organisation is merely a shell, with a small headquarters as a broker between suppliers, design, manufacturing, and other organisations. For instance, Hennes and Mauritz (H&M), a well-known Swedish retail apparel brand, outsources its garments to a network of 700 suppliers, more than two-thirds located in low-cost Asian countries. H&M may be more flexible in decreasing prices than many other retailers because it does not own any manufacturing, which coincides with its low-cost approach. Recent breakthroughs in complex network theory have revealed the potential management opportunities they provide, including applications to product design and development as well as market and industry innovation problems

7. Virtual Structure:

This is a network structure extension. Independent organisations form temporary coalitions to capitalise on particular possibilities, then disband when their goals are completed. “virtual” refers to “being in effect but not being so.” Virtual organisations comprise a network of independent businesses—suppliers, customers, or even competitors—that are linked together to share skills, costs, markets, and rewards. Members of a virtual organisation pool exchange knowledge and expertise with each other. Developing an Agile Virtual Organization: Under the agile enterprise concept, new strategies to manage change and compete in a quickly changing business world are emerging. Agile organisations can be practically any size or shape, but their ability to read and respond rapidly sets them apart from their ponderous traditional corporate counterparts. They can also be virtual, which means they can quickly and temporarily reorganise themselves in response to a problem, giving them agility but dissipating or transmuting into something new. Virtual organisations have existed throughout history, from whaling businesses in the nineteenth century to film studios in the twentieth. Virtual organisations have few full-time employees and frequently recruit outside professionals temporarily to execute a specific project, such as a new software application. These individuals do not become employees of the organisation but instead form a separate corporation for a specific purpose. Rather than creating those competencies in-house, some businesses adopt a virtual strategy to harness the talents and energies of the most incredible people for a specific role. With the advent of sophisticated management technologies, the agile virtual firm is no longer simply a theoretical concept. When an organisation employs a virtual approach, the virtual group typically has complete authority to make decisions and act within predetermined boundaries and goals. The majority of virtual organisations share information and data via electronic media. Some businesses have redesigned their offices to accommodate virtual workers who need to meet or work on-site.

Advantages and disadvantages:

Advantages

-It has access to expertise from all over the world.

-It is highly adaptable and responsive.

-It lowers overhead costs.

Disadvantages

-A lack of control due to a virtual organization’s weak and ambiguous boundaries.

-Virtual teams create new expectations for managers, who must collaborate with new individuals, ideas, and challenges.

-Virtual organisations create communication challenges, and managers may lose motivation.

Apple Computer and Sun Microsystems are two companies that have successfully incorporated forms of this new structure. When Apple Computer combined its user-friendly software with Sony’s manufacturing expertise in downsizing, the company was able to quickly bring its product to market and obtain a market share in the PC industry’s notebook category.

Sun Microsystems is another extremely decentralised company made up of separately operating enterprises. Sun prioritises information systems to achieve faster and better communication. Various “SunTeams” members work across time, place, and organisations to address essential business issues. Sun managers identify significant client concerns and build teams with the relevant skills and knowledge to handle the issue. This team may include sales, marketing, financial, and operations workers worldwide; customers and suppliers may become episodic members as needed. Weekly meetings can be conducted via conference calls. The selection of talent from the organisation, the definition of a clear objective for the team’s work, and the establishment of communication channels among team members are all critical to the team’s success.

Sun has been working on the advancement of technologies such as EDI (Electronic Data Interchange) and RFID (Radio Frequency Identification). Both EDI and RFID will impact information sharing globally and across a wide range of businesses.

11.5 Modular Organization

Modern information and communication technology has considerably improved organisations’ ability to engage with others. A corporation may now maintain more ties with more companies at a far lesser cost than in the past. Increased business networks necessitate the effective modularisation of products, processes, and firms. Because the various units involved in the design process of products with interchangeable components are loosely coupled, operate autonomously, and can be easily reconfigured, modular products tend to favour a modular organisational form.

The concept of modularity can be applied not just to sophisticated product system design but also to the interpretation and design of business systems. A modular organisation is one in which distinct functional components are segregated, a software engineering strategy.

A modular organization differs from a composite organization in that functions are not separated. It also differs from a hierarchical organization. The horizontal design of a system is central to modular organization.

Modularity enables components to be manufactured independently and utilised interchangeably in various configurations without jeopardising system integrity. In modular organisations, coordination tasks are outsourced to particular modules (functions, teams, etc.), and coherence is easily achieved through properly specified interfaces. Aside from reducing managerial complexity, this structural, hierarchical function-based deconstruction results in the localization of the impacts of environmental disturbances inside certain modules, boosting the total organization’s immunity and adaptability in a turbulent environment.

11.6 Towards boundary-less Structures

Traditional businesses with borders, rules, and detailed plans are at a severe disadvantage in today’s globalised world, where technology is changing daily, and the value chain is changing as well. The way a company plans its business can cause it to fail despite planning in a traditional company where employees are neatly divided into neatly defined positions with their job descriptions filed in triplicate in the Human Resources department. This is because the boundaries can result in missed opportunities, competition overtaking it, revenue loss, or watching its niche disappear due to new technology, a change in the global marketplace, or simply a failure to manage. When changes occur, they occur too quickly for its organisational processes to meet them; as a result, opportunities are swiftly lost, issue circumstances take over, and the company loses customers, opportunities, and market share before it can respond effectively. Although that organisation most likely has more than enough talent to counteract all of those tragedies, the talent is never used because employees are restricted to operating inside the boundaries of their job descriptions, where only the prescribed abilities may be put to good use.

The solution to this conundrum is found in organisations with no boundaries. A boundaryless organisation is a modern organisational design method. It is an organisation that is neither defined nor constrained by the horizontal, vertical, or exterior bounds imposed by a preset structure. Former GE chairman Jack Welch coined this term to reduce vertical and horizontal boundaries within GE and external obstacles between the firm, its customers, and suppliers.

A significant question is whether all businesses will become boundaryless. Yes, but not all businesses can do it today because such a radical methodology requires an organisation to be entirely compatible. Upper-level management must embrace it wholeheartedly, knowing that their status in the new organisation will vanish, and employees must be retrained to understand how to operate under the new paradigm. Companies should already be on their way to that point, and those who achieve it first will have the most advantage.

11.7 Structures for Strategies

It is helpful to examine the historical context to comprehend the reasoning behind this approach to creating organisational structures. Before the early 1960s, as previously stated, US strategist Alfred Chandler researched how several top US firms created their strategies in the first part of the twentieth century. He then made some fundamental conclusions from this empirical evidence, the most important of which was that the organisation needed first to determine its strategy and then design the organisational structure that provided that plan. Chandler distinguished between developing a strategy and putting it into action. He described strategy as “the establishment of an enterprise’s basic long-term goals and objectives, as well as the choosing of courses of action and the allocation of resources required to carry out these goals.”

The plan was developed at the corporate and business levels of the organisation. It was then up to the various functional sectors to implement it. According to Chandler’s research, after a plan was devised, it was vital to consider the structure required to carry it out. A new strategy may necessitate additional resources, staff, or equipment, which would impact the enterprise’s operations.

Transformations in the Business Environment and Social Values

The earlier theory must be placed in its historical strategic context to understand why developing an organisational structure after settling on a strategy is no longer acceptable. The environment has altered dramatically since Chandler’s research in the early twentieth century. The workplace, the relationship between workers and management, and employee abilities have all changed dramatically. As a result, old organisational structures rooted in previous understandings may be problematic. Table 11.2 outlines the environmental changes from the early twentieth to the twenty-first century.

Structure and strategy are inextricably intertwined.

Strategy and structure, according to current strategists, are inextricably intertwined. It may not be the best practice for a company to develop its structure after it has developed its strategy. The relationship is more complicated in two ways:

The strategy and the associated structure may need to develop concurrently in an experimental manner. As the plan evolves, so does the structure. The organisation learns to adapt to its changing environment and resources, especially if the change is drastic.

If the strategy process is emergent, the learning and experimentation may necessitate a more open and informal organisational structure.

Managing the Difficulties of Strategic Change

Quinn says that strategic change may need to be implemented in tiny steps. He referred to the procedure as “logical incrementalism.” The evident conclusion is that defining the eventual organisational structure may be impossible, which may also need to adapt as the strategy progresses incrementally. He understands the value of informal organisational structures in agreeing on strategy modifications. If the reasoning is correct, it will be apparent that any notion of a single, ultimate organisational structure is questionable after deciding on a stated strategy.

Criticism of Strategy: First, Structure, Then Process

Structures may be too rigid, hierarchical, and bureaucratic to handle contemporary social values and an ever-changing environment.

The type of structure is just as significant as the business field in designing an organization’s strategy. The structure will constrain, guide, and shape the strategy.

Value chain configurations that favour cost-cutting or new market opportunities may necessitate changes to the organisation.

The complexity of strategic change must be managed, implying that more complex organisational considerations will be involved. Simple configurations, such as switching from a functional to a divisional structure, are only the beginning of the process.

The role of top and middle management in strategy formation may also need to be reconsidered. Chandler’s assertion that top leadership is the only factor in determining strategy is disputed. Middle management, as well as the organization’s culture and structure, may be significant, particularly for new, innovative strategies. The leader’s job in enabling middle management may necessitate a new strategy—the organic style of leadership.

‘Strategic Fit’ as a Concept

Although it may be impossible to determine which comes first, strategy and structure must be in sync. PepsiCo, for example, reorganised its North American business to ensure that its strengths in the growing non-carbonated drinks market could be leveraged across its entire beverage portfolio. A matching process between an organization’s strategy and structure is required to be economically effective. This is the idea behind strategic fit.

To effectively carry out the recommended plan, organisations must establish an internally consistent set of procedures. Such procedures will entail more than just the organisation’s structure. They will also discuss reward systems, information systems and procedures, culture, leadership styles, etc.

There is considerable empirical evidence from Chandler and Senge that a degree of strategic fit between the strategy and the organisational structure is required.

Although the environment constantly changes, organisations may only adjust slowly and fall behind external change, which is often considerably faster—for example, the advent of digital technology. As a result, it is unlikely that the organization’s strategy and structure will be perfectly aligned. Evidence shows that a certain level of fit is required for an organisation to survive. It has also been proposed that ensuring fit early in the strategic planning process may improve economic performance. However, as the environment shifts, the strategic fit will also need to shift.