Organizational Structure & Strategy

from www​.dar​win​biz​.com

Every orga­ni­za­tion has a unique struc­ture. An orga­ni­za­tional struc­ture is the reflec­tion of the company’s past his­tory, report­ing rela­tion­ships, inter­nal pol­i­tics and what is called com­pany cul­ture (or sub­cul­ture). Since form fol­lows func­tion, it is impor­tant for us to look closely into each of our orga­ni­za­tional struc­tures and check whether the struc­ture we cur­rently have sup­ports our busi­ness strategy.

In the end, you may need to cus­tomize your orga­ni­za­tional struc­ture to fit your strategy.

This is from the Atlantic Canada Busi­ness Blog. The fol­low­ing points can help you iden­tify the appro­pri­ate struc­ture needed for strat­egy implementation:

Iden­tify crit­i­cal activ­i­ties in your organization’s value chain

In your busi­ness, there are some activ­i­ties that are crit­i­cal to the strate­gic process while oth­ers are not. Let us call them pri­mary and sup­port activ­i­ties respec­tively. Pri­mary activ­i­ties have to be per­formed exceed­ingly well to develop your organization’s core com­pe­ten­cies. For exam­ple, a prod­uct man­u­fac­tur­ing firm has to be good at pur­chas­ing, pro­duc­tion, mer­chan­dis­ing and pro­mo­tional activ­i­ties. An insur­ance com­pany must be good at lead gen­er­a­tion, pric­ing, under­writ­ing and quick and just pro­cess­ing of claims. In all orga­ni­za­tions, the sup­port activ­i­ties include pay­roll, book-keeping, IT infra­struc­ture, man­ag­ing investor rela­tions, PR, etc. Iden­ti­fy­ing your pri­mary activ­i­ties is impor­tant. In order to iden­tify your pri­mary activ­i­ties, you need to answer the following:

• What processes do we need to per­form exceed­ingly well that will help us achieve a com­pet­i­tive advantage?
• What areas in our busi­ness value chain will hurt us if we fare poorly?
• As you can see, answer­ing these ques­tions will imme­di­ately enable you to see your pri­mary activities.

Once you have iden­ti­fied mis­sion crit­i­cal activ­i­ties, you need to decide if you are going to out­source the non-critical activ­i­ties. If your man­agers are spend­ing too much time on activ­i­ties that do not fur­ther your strat­egy, that activ­ity is a good can­di­date for out­sourc­ing. What makes out­sourc­ing attrac­tive is that your non-critical activ­ity is another organization’s crit­i­cal (or core) activ­ity (or com­pe­tency). They will have experts who can effi­ciently per­form the activ­ity. For exam­ple, all major air­lines out­source in-flight meals while focus­ing on time­li­ness, sales and mar­ket­ing and logis­tics. In-flight meals is not the air­lines’ core busi­ness: oper­at­ing flights on time is.

PC man­u­fac­tur­ers out­source the assem­bly of PCs while focus­ing on design, sales and dis­tri­b­u­tion. Sales, assem­bling and value added ser­vices are the PC man­u­fac­tur­ers core busi­ness, and not man­u­fac­tur­ing. In both the above exam­ples, their ven­dors core com­pe­tency is in-flight meals and man­u­fac­tur­ing respec­tively. Decid­ing which activ­i­ties to per­form inter­nally and what to out­source is of strate­gic impor­tance and you should not take it lightly. As a CEO you need to decide if out­sourc­ing is best for your orga­ni­za­tion. One of the other advan­tages of out­sourc­ing (besides lower costs) is that both orga­ni­za­tions can ben­e­fit from each other’s arse­nal of capa­bil­i­ties. By lever­ag­ing col­lab­o­ra­tive part­ner­ships, your orga­ni­za­tion can enhance your orga­ni­za­tional capa­bil­i­ties and build resource strengths that deliver value to your customers.

Build struc­ture around these iden­ti­fied crit­i­cal activities

It fol­lows that you struc­ture your orga­ni­za­tion around these crit­i­cal strategy-furthering activ­i­ties, doesn’t it? Match­ing struc­ture to strat­egy involves mak­ing strategy-critical activ­i­ties the main build­ing blocks in your organization’s struc­ture. Imple­ment­ing a new strat­egy often required new resources and skills for new activ­i­ties. You can­not afford a mis­match between your strat­egy and struc­ture, since a mis­match can lead to poor strat­egy imple­men­ta­tion. Just as your organization’s strat­egy needs to change with chang­ing exter­nal envi­ron­ment, so must your struc­ture change for proper strat­egy imple­men­ta­tion. A word of cau­tion here. If your exist­ing struc­ture needs to be rad­i­cally changed for suc­cess­ful strat­egy imple­men­ta­tion, you may need to rethink your strat­egy. There is no per­fect or ideal orga­ni­za­tional struc­ture. The bot­tom line is once a strat­egy has been cho­sen, struc­ture must be mod­i­fied to fit the strategy.

Decide on the author­ity for each man­ager and employee

As a CEO (or as part of the man­age­ment team) you need to decide how much author­ity to give each man­ager. You also need to decide on how much decision-making free­dom to give employ­ees. It is not rec­om­mended hav­ing a small num­ber of top-level man­agers micro-manage by per­son­ally mak­ing deci­sions. Very often it is advan­ta­geous to put some decision-making author­ity in the hands of the front line employ­ees. They are the peo­ple most famil­iar with the sit­u­a­tion. The objec­tive of decen­tral­ized decision-making is not to push deci­sions to front-line employ­ees, but to empower those clos­est and most knowl­edge­able about the sit­u­a­tion. Cen­tral­ized and author­i­tar­ian orga­ni­za­tions are not well suited to imple­ment­ing strate­gies in today’s Inter­net era and where a large pro­por­tion of your orga­ni­za­tional assets is in the form of intel­lec­tual cap­i­tal of your employ­ees. On the flip side, empow­er­ment has its own chal­lenges. How to empower employ­ees but not put the busi­ness at risk? But if you have done a good job of hir­ing and retain­ing the best peo­ple, this is not going to be much of a problem.

Nur­tur­ing relationships

This is one of the most impor­tant ingre­di­ents of a suc­cess­ful strat­egy imple­men­ta­tion. It is impor­tant for you to grow and develop rela­tion­ships. You will only see the ben­e­fits in the long term. This holds true for the employ­ees you hire and for the strate­gic part­ner­ships you form. Employ­ees may also be called strate­gic part­ners. They are inter­nal to the com­pany while your ven­dors are exter­nal. There has to be enough infor­ma­tion shar­ing to make the rela­tion­ships work. You need to have open and frank dis­cus­sions on con­flicts and trou­ble spots to smoothen them out. When look­ing to develop a rela­tion­ship with an employee or an exter­nal orga­ni­za­tion, your objec­tive must be get resource capa­bil­ity and not just a deal. This hap­pens only over a long term.