Explain Why Organizational Structure Is So Important In Strategy Implementation?


2 Answers

Adil Mahmood Profile
Adil Mahmood answered
Every organization has a unique structure. An organizational structure is the reflection of the company’s past history, reporting relationships and internal politics. As a CEO, you need to take a very close look at your organization structure and evaluate if it supports your strategy. You may need to customize your organizational structure to fit your strategy. 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.

Decide which of these activities you will perform internally
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 activity. 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 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.

Answer Question