Strategic Management and Organisational Structure

In the 1960s and 1970s strategic planning consisted of complex and bureaucratic processes which culminated in a comprehensive strategic plan. Over time it was realised that this type of strategic plan was of little use, as changes in conditions and unexpected events made the plan obsolete. The main benefit of this type of planning was the process itself, which increased understanding of the organisation and its situation. Modern planning systems tend to be more flexible and informal. The plans produced focus on general principles and trends, rather than detailed actions.

Strategy is a set of principles which guides the future actions and decisions of the organisation, with the intention of achieving specified goals. Strategy consists of several elements:
A picture of how the organisation should look at some time in the future, which is the vision -> Aclear statement about the essential nature of the organisation, which is the mission -> A set of measurable objectives which are the means of reaching the vision -> Broad strategic plans which define the resources and methods of attaining the objectives.

The usual way strategy is developed is through a process of strategic planning, which results in the vision statement, mission, objectives and plans. In the past this was often a yearly event, with senior management getting together for several days to do 'The Strategic Plan'. Now strategic planning is a much more flexible process. Members of the organisation scan the environment continuously, alert to any new opportunities or threats that may arise. They monitor changes in technology, the market and global economics. If there is a development or an event which might affect the organisation, they come together to discuss the implications and look at how they might deal with it.

An effective form of a vision statement is a picture of what the organisation should look like in three to five years from now. This statement should be specific, verifiable and able to excite and inspire staff. A good vision statement should be: clear, verifiable, focused, understandable to all employees, inspirational (Brown 1998).

Like the vision statement, the mission statement can all too often be a collection of platitudes and bland motherhood statements. Unless the document says something meaningful, positive and exciting, it is better not to have one. Vision statements and mission statements are flexible terms and some organisations use them interchangeably. 'Values statements' are also sometimes added. However, a sensible view is that the vision says where the organisation is heading and the mission says what the organisation is.

The vision and the mission statements establish the framework for the strategic objectives of the organisation. The aim is to find ways of reaching the state defined in the vision statement, using the principles and constraints outlined in the mission statement. The objectives should be a mix of quantifiable and qualitative goals. Hitt et al. (page 194) suggest that the following could be included in strategic objectives: revenue growth, profitability, customer satisfaction, market share, financial returns, technological leadership, cash flow, operating efficiency.

Strategic plans outline how the strategic objectives are going to be achieved. These plans should not be too detailed—they must leave room for flexibility, allowing managers to use their own judgment and respond to changes in the external environment. In essence, the various elements of the strategy provide the framework within which managers operate. Managers use the vision statement, mission statement, objectives and strategic plans to set the direction of their actions and to limit the areas within which their company operates.

A survey of the organisation's strengths, weaknesses, opportunities and threats (SWOT analysis) is a useful tool to integrate the information about the external environment and the organisation's capabilities. This examines the current position of the organisation by classifying its capabilities and potential. There will be areas where the organisation has a competitive advantage over its rivals and other areas where they will be weak.

There are many tools which help organisations evaluate and select their strategy. You have read in the textbook about product life cycle analysis (pages 204–205), the BCG matrix (page 206) and SWOT analysis (pages 209–211), there are also the advantage matrix; gap analysis; competitive position-market attractiveness matrix; customer profitability matrix and many others.

Most businesses are not simple organisations (often referred to as single line of business), but rather comprise a number of different business units that may require separate strategic plans. This means that the strategic planning process is a complex task, requiring development of corporate—as well as business unit—level elements for strategy and strategic plans. A term which is used to denote the level of complexity in the business is diversification. Growth, concentration, diversification, vertical integration, retrenchment, restructuring, downsizing, divestiture, strategic alliances and e-business are all elements which are not in themselves strategies, but may be considered part of an overall strategy.

Once a type of strategy has been agreed and the associated objectives defined, the final stage is to formulate the plan and circulate it to all involved in implementing it. Clearly the discussion of ideas, collection of information and assessment of options will have involved a number of people with diverse knowledge, experience and expertise. Once the strategic concepts have been agreed by the management team, one person should collate ideas and produce the draft plan. The next step should be to invite feedback on the draft plan. Not only does this bring a wide range of experience and expertise to bear on the plan, but it also increases staff commitment. The strategic plan has to be pitched at the right level. Too general and it will provide little guidance; too detailed and it will be insufficiently flexible to adapt to changes in conditions and will curtail the authority of managers and staff who are responsible for fulfilment of the plan.

A good strategic plan is a working document, not a folder that is put away until the next strategic planning session. It should be the blueprint that guides operations over the year. The strategic plan can be considered as an all-embracing project, with tasks and milestones and plans and review meetings. This way, the organisation never loses sight of its direction. One of the key principles is that the plan should be able to be modified when it becomes apparent that a change in the external environment may have a significant effect on the proposed strategy. There should be reviews of the plan, therefore, to examine how it should be adapted to new situations.

The structure of an organisation affects what it can do well. For example, an informal organisation with open communication and few controls is often very good at innovation and research. On the other hand, an organisation with clear departmental boundaries, strict controls and detailed procedures for operations is often extremely effective at producing cost-effective products of high quality and reliability. An organisation has to examine its structure to decide what kinds of operations it will be good at; or decide on a strategy and adapt the structure to suit the competitive strengths it needs to be successful.

One can define an organisational structure as a system of tasks, reporting relationships and communication linkages. The purpose of the organisational structure is to direct resources according to plans and schedules, facilitate information flow and provide an intrinsic level of control. The arrangement of functions within an organisation is important. There is also usually an evolution of structure over the history of an organisation. Henry Mintzberg in his brilliant book, Structure in Fives, (1983: 153 ff) describes five basic organisational structures:
1. the simple structure with direct supervision
2. the 'machine bureaucracy' with standardisation of work processes
3. the professional bureaucracy with standardisation of skills
4. the divisionalised form with standardisation of outputs
5. adhocracy, with mutual adjustment of staff to one another.

Many organisations evolve progressively through structures 1 to 4 (and sometimes on to structure 5) as the organisation grows and becomes more complex.

Traditional organisation structures allow the grouping of people and jobs together into work units on the basis of the classical principle of division of labour. These work units are linked together in a coordinated manner within the larger organisation. This is the process of departmentalisation which has traditionally resulted in functional, divisional and matrix structures.

Organisational structures based on function allocate resources to activities which can be grouped on the basis of function, such as accounting or engineering. Organisational structures based on divisions allocate resources on the basis of broader dimensions such as location or outputs. Organisations evolving from single to multi-country operations often expand by establishing new divisions in the new location, which are usually mini-versions of the parent company.

An alternative approach which is becoming increasingly popular is to adopt a hybrid of functional and divisional structures to enable the organisation to focus resources under two operating paradigms, instead of one. The name matrix structure refers to the diagrammatic representation of such an organisation as a chart with functions along one axis and divisions along the other. A significant side
effect of such a structure is that employees often find that they end up with two bosses - one as a result of the functional structure of the organisation and one as a result of the divisional structure of the organisation!

Robbins, Waters-Marsh et al. (1994) suggest that traditional organisational structures can also be defined in terms of complexity, centralisation and formalisation. These elements can be defined as follows:

  • Complexity involves how differentiated or broken down into parts activities are within an organisation. They can be differentiated horizontally, vertically or spatially.
    • Horizontal differentiation refers to the number of different specialisations and subcultures within an organisation.
    • Vertical differentiation refers to the depth of hierarchy within an organisation, the layers of supervisors and managers that exist between top management and workers.
    • Spatial differentiation refers to how physically or geographically spread out people are within an organisation.
  • Centralisation refers to the degree to which decision making is concentrated at one point in the organisation
  • Formalisation refers to what Stoner et al. (1985) call standardisation. This means the degree to which jobs have been routinised and prescribed.

One such innovation is network structures which operate with a central core, that is linked through networks of relationships with outside contractors and suppliers of essential services. In recent times, the Internet has contributed substantially to establishing network structures, which are sometimes referred to as virtual organisations. A structure that might be considered a variation on a network structure is what Mintzberg (1983) called an adhocracy—the term being a combination of ad hoc to indicate reactive behaviour and bureaucracy to indicate structure. Adhocracies come into being when people agree to work together for the duration of a specific project. Organisations are increasingly reducing the levels of hierarchy in their structures to increase efficiencies and reduce labour costs. This means that senior managers move closer to the core processes of the organisation. This also increases the span of control of individuals within the organisation as they become individually responsible for more activity.