Organizational Structures
Although many different organizational structures are possible, certain types of structures become dominant in modern complex organizations.
Generally, some structures support certain strategies better than others.
Structure 1: Simple Structure
This is for a small, entrepreneur company with just a few product lines operating in an identifiable market niche. Employees tend to be generalists. In terms of development, this is a stage 1 company.
Structure 2: Functional Structure
This is usually appropriate for medium-sized organizations with several product lines in one industry. Employees tend to be generalists in important business functions of the industry, such as manufacturing, marketing, finance, and human resources. In terms of development, this is a stage 2 company.
Structure 3: Divisional Structure
This is for a large corporation with many product lines in several related industries. Employees tend to be functional specialists organized in product or market fashions.
Management attempts to find synergy among divisional activities through committees and horizontal linkages. In terms of development, this is a stage 3 company.
Structure 4: Strategic Business Unit Structure
This is a modification of the divisional structure. Strategic business units are divisions or groups of divisions composed of independent product market segments that are given responsibility and authority for the management of their own functional areas.
This is to ensure that the organization is decentralized on the basis of strategic elements rather than on the basis of size, product characteristics, or span of control. In terms of development, this is also a stage 3 company.
Structure 5: Conglomerate Structure
This is for a large corporation with many different product lines in several unrelated industries. As this is a variant of the divisional structure, the conglomerate structure is an assemblage of legally independent subsidiaries operating under one corporate umbrella but control through the subsidiaries’ board of directors. This is to prevent any attempt at synergy among the subsidiaries. In terms of development, this is also a stage 3 company.
Rather than these basic organizational structures, management should decide whether they want to pursue more advanced organizational structures such as a matrix or network organization, depending on the organization’s strategy.
Organizational Culture
Organizational culture can be defined as a pattern of behavior that has been developed by an organization as it learns to cope with its problem of external adaptation and internal integration, and that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel.
Organizational culture permeates all departments and divisions of an organization. It captures the subtle, elusive, and largely unconscious forces that shape a workplace.
Cultural products include values, beliefs, rites, rituals, ceremonies, myths, stories, legends, sagas, language, metaphors, and symbols.
Culture would also include the dominant orientation of the company and a number of informal work rules have employees follow without question. These work practices over time become part of the company’s unquestioned tradition.
Organizational culture usually reflects the values of the founder and the mission of the firm. It gives the company a sense of identity. These are essentially the beliefs, expectations, and values shared by organization members and transmitted from one generation to another.
An organization’s culture compares to an individual’s personality in the sense that no two organizations have the same culture and no two individuals have the same personality.
A culture fulfills 4 important functions of an organization.
They are: (1) to conveys a sense of common identity for employees; (2) helps generate employee commitment to something greater than themselves; (3) adds stability to the organization as a social system; and (4) serves as a frame of reference for employees to guide organizational activities.
Corporate Culture Attributes
A culture has 2 distinct attributes, intensity, and integration.
Cultural intensity is the degree to which members of a unit accept the norms, values, and other cultural content associated with the unit. Employees in an intensive culture tend to exhibit consistent behavior and act similarly over time. This shows the cultural depth.
Culture integration is the extent to which units throughout an organization share a common culture. Organizations with a pervasive dominant culture may be hierarchically controlled and power-oriented and have high integrated cultures. All employees tend to hold the same cultural values and norms. In contrast, a company that is structured into diverse units by functions or divisions usually exhibits some strong subcultures and a less integrated corporate culture. This shows the cultural breadth.
Roles of Corporate Culture in Organization
Organizational culture has several important roles to play in an organization.
The first role is to shape the behavior of the people in an organization, thus affecting corporate performance. A corporate culture that emphasizes the socialization of new employees has less employee turnover, leading to lower costs.
The second role is to strengthen the strategic direction of the organization. Corporate cultures have a powerful influence on the behavior of people at all levels, they can strongly affect a corporation’s ability to shift its strategic direction. A culture emphasizing constant renewal may help the organization adapt to a changing, hypercompetitive environment.
Corporate Culture & Strategy
The strategic management process takes place largely within a particular organization’s culture. Organizational culture significantly affects business decisions and thus must be evaluated during an internal environment scanning process.
Some tension between culture and a firm’s strategy is inevitable, but the tension should be monitored so that it does not reach a point at which relationships are severed and the culture becomes antagonistic. The resulting disarray among members of the organization would disrupt strategy formulation, implementation, and evaluation, and control.
If strategies can capitalize on cultural strengths, such as a strong work ethic or highly ethical beliefs, then management often can swiftly and easily implement changes.
However, if the firm’s culture is not supportive, strategic changes may be ineffective or even counterproductive. A firm’s culture can become antagonistic to new strategies, with the result being confusion and disorientation.
Culture provides an explanation for the insuperable difficulties a firm encounters when it attempts to shift its strategic direction. Not only has the right culture become the essence and foundation of corporate excellence, success or failure of reforms hinges on management’s sagacity and ability to change the firm’s driving culture in time and in time with required changes in strategies.
Relationships among a firm’s functional business activities can be exemplified by focusing on the analysis of organizational culture. Ignoring the effect that culture can have on relationships among the functional areas of business can result in barriers to communication, lack of coordination, and an inability to adapt to changing conditions.
Remarkably resistant to change, culture can represent a major strength or weakness for the firm. It can be an underlying reason for strengths or weaknesses in any of the major business functions.
If organizational culture is compatible with a new strategy, it is internal strength. If not, then it will be a serious weakness. Usually, a change in mission, objectives, strategies, or policies is not going to be successful without alignment to the accepted culture of a firm, as employees will fight to resist a radical change in corporate philosophy.
Culture can inhibit strategic management in two basic ways.
First, managers frequently miss the significance of changing external conditions because they are blinded by strongly held beliefs.
Second, when a particular culture has been effective in the past, the natural response is to stick with it in the future, even during times of major strategic change.
Management
The functions of management consist of five basic activities: (1) planning, (2) organizing, (3) motivating, (4) staffing, and (5) controlling.
Activity 1: Planning
Planning consists of all managerial activities related to preparing for the future.
Specific tasks of planning include forecasting, establishing objectives, devising strategies, developing policies, and setting goals.
Planning is the process by which one determines whether to attempt a task, works out the most effective way of reaching desired objectives, and prepares to overcome unexpected difficulties with adequate resources.
Planning is the essential bridge between the present and the future that increases the likelihood of achieving desired results. Planning enables a firm to identify precisely what is to be achieved and to detail precisely the who, what, when, where, why, and how needed to achieve desired objectives. Planning helps ensure that the firm can be prepared for all reasonable eventualities and for all changes that will be needed.
For a firm to be able to adapt to changing markets, it requires planning.
Strategic management can be viewed as a formal planning process that allows an organization to pursue proactive rather than reactive strategies. Successful organizations strive to control their own futures rather than merely react to external forces and events as they occur. Swift adaptation is needed today more than ever because changes in markets, economies, and competitors worldwide are accelerating.
For a firm to achieve better organizational performance, it also requires planning.
Planning can have a positive impact on organizational performance. Planning allows an organization to identify and take advantage of external opportunities as well as minimize the impact of external threats. Planning also includes developing a mission, forecasting future events and trends, establishing objectives, and choosing strategies to pursue.
For a firm to gather sufficient resources and carry out tasks in the most efficient way possible, it requires extensive planning.
Planning enables a firm to conserve its own resources, avoid wasting ecological resources, make a fair profit, and be seen as an effective, useful firm. Planning enables a firm to assess whether the effort, costs, and implications associated with achieving desired objectives are warranted.
The process of planning must involve managers and employees throughout an organization.
All managers should do planning and should involve subordinates in the process to facilitate employee understanding and commitment. An organization can develop synergy through planning. Synergy exists when everyone pulls together as a team that knows what it wants to achieve. By establishing and communicating clear objectives, employees and managers can work together toward desired results. Synergy can result in powerful competitive advantages.
The time horizon for planning decreases from two to five years for top-level to less than six months for lower-level managers.
Activity 2: Organizing
Organizing includes all those managerial activities that result in a structure of task and authority relationships.
Specific areas include organizational design, job specialization, job descriptions, job specifications, the span of control, unity of command, coordination, job design, and job analysis.
In order to achieve effectively and efficiently coordinated effort within a firm, organizing is required when defining task and authority relationships.
Organizing means determining who does what and who reports to whom. A well-organized firm generally has motivated managers and employees who are committed to seeing the organization succeed. Resources are allocated more effectively and used more efficiently in a well-organized firm than in a disorganized firm.
The organizing function of management can be viewed as consisting of 3 sequential activities.
They are: (1) breaking down tasks into jobs (work specialization), (2) combining jobs to form departments (departmentalization), (3) and delegating authority (authority delegation).
Work specialization requires the development of job descriptions and job specifications. These tools clarify for both managers and employees what particular jobs entail.
Departmentalization to form departments results in an organizational structure, span of control, and a chain of command. Changes in strategy often require changes in structure because positions may be created, deleted, or merged. Organizational structure dictates how resources are allocated and how objectives are established in a firm.
Authority delegation is an important organizing activity. Employees today are more educated and more capable of participating in organizational decision-making than ever before. In most cases, they expect to be delegated authority and responsibility and to be held accountable for results.
Activity 3: Motivating
Motivating involves efforts directed toward shaping human behavior.
Specific topics include leadership, communication, workgroups, behavior modification, delegation of authority, job enrichment, job satisfaction, needs fulfillment, organizational change, employee morale, and managerial morale.
Motivating is the process of influencing people to accomplish specific objectives. Motivation explains why some people work hard and others do not. Objectives, strategies, and policies have little chance of succeeding if employees and managers are not motivated to implement strategies once they are formulated.
The motivating function of management includes at least 3 major components: leadership, group dynamics, and communication.
Component 1: Leadership
Good leaders establish rapport with subordinates, empathize with their needs and concerns, set a good example, and are trustworthy and fair. Leadership includes developing a vision of the firm’s future and inspiring people to work hard to achieve that vision.
When managers and employees of a firm strive to achieve high levels of productivity, this indicates good leaders.
Democratic behavior on the part of leaders results in more positive attitudes toward change and higher productivity than does autocratic behavior.
Leadership is not a magnetic personality. It is not about making friends and influencing people. Leadership is the lifting of a person’s vision to higher sights, the raising of a person’s performance to a higher standard, the building of a person’s personality beyond its normal limitations.
Component 2: Group Dynamics
Group dynamics play a major role in employee morale and satisfaction. Informal groups or coalitions form in every organization.
The norms of coalitions can range from being very positive to very negative toward management. It is important, therefore, that management identifies the composition and nature of informal groups in an organization to facilitate strategy formulation, implementation, and evaluation, and control.
Leaders of informal groups are especially important in formulating and implementing strategy changes.
Component 3: Communication
Communication, perhaps the most important word in management, is a major component of motivation. An organization’s system of communication determines whether strategies can be implemented successfully.
A primary reason for instituting strategic management is to build and support effective communication networks throughout the firm.
Good two-way communication is vital for gaining support for departmental and divisional objectives and policies. Top-down communication can encourage bottom-up communication. The strategic management process becomes a lot easier when subordinates are encouraged to discuss their concerns, reveal their problems, provide recommendations, and give suggestions.
Management must be able to get people to commit themselves to the business, whether they are machine operators or junior vice presidents. The key issue will be empowerment, a term whose strength suggests the need to get beyond merely sharing a little information and a bit of decision making.
Activity 4: Staffing
Staffing activities are centered on personnel or human resource management.
Specific topics include wage and salary administration, employee benefits, interviewing, hiring, firing, training, management development, employee safety, affirmative action, equal employment opportunity, union relations, career development, personnel research, discipline policies, grievance procedures, and public relations.
Staffing activities play a major role in strategic management efforts, and it is important to identify strengths and weaknesses in the staffing area.
The complexity and importance of human resource activities have increased to such a degree that all but the smallest organizations now need a full-time human resource manager. The human resources department coordinates staffing decisions in the firm so that an organization as a whole meets legal requirements. Organizations and individuals can be penalized severely for not following federal, state, and local laws and guidelines related to staffing.
This department also provides needed consistency in administering company rules, wages, policies, and employee benefits as well as collective bargaining with unions.
Activity 5: Controlling
Controlling refers to all those managerial activities directed toward ensuring that actual results are consistent with planned results.
The controlling function of management includes all of those activities undertaken to ensure that actual operations conform to planned operations. All management has controlling responsibilities, such as conducting performance evaluations and taking necessary action to minimize inefficiencies.
Key areas of concern include quality control, financial control, sales control, inventory control, expense control, analysis of variances, rewards, and sanctions.
Controlling consists of 4 basic steps.
They are: (1) Establishing performance standards; (2) Measuring individual and organizational performance; (3) Comparing actual performance to planned performance standards; (4) Taking corrective actions.
Measuring individual performance is often conducted ineffectively or not at all in
organizations.
Some reasons for this shortcoming are that evaluations can create confrontations that most managers prefer to avoid, can take more time than most managers are willing to give, and can require skills that many managers lack.
No single approach to measuring individual performance is without limitations.
Thus, an organization should examine various methods, such as the graphic rating scale, the behaviorally anchored rating scale, and the critical incident method, and then develop or select a performance-appraisal approach that best suits the firm’s needs.
Increasingly, firms are striving to link organizational performance with managers’ and employees’ pay.
Resources
Further Reading
- What are your Organization Capabilities? (summitleadership.com)
- Building organizational capabilities: McKinsey Global Survey results (mckinsey.com)
- How to run an organizational capabilities assessment (managementkits.com)
- Knowing which organization capabilities make a difference (hrdconnect.com)
- Organizational Capabilities Matter (bcg.com)
- Business Processes and Organizational Capability (processrenewal.com)
Related Concepts
References
- Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2019). Strategic Management: Concepts and Cases: Competitiveness and Globalization (MindTap Course List) (13th ed.). Cengage Learning.
- Hill, C. W. L., & Jones, G. R. (2011). Essentials of Strategic Management (Available Titles CourseMate) (3rd ed.). Cengage Learning.
- Mastering Strategic Management. (2016, January 18). Open Textbooks for Hong Kong.
- Wheelen, T. L. (2021). Strategic Management and Business Policy: Toward Global Sustainability 13th (thirteenth) edition Text Only. Prentice Hall.