How Structure Evolves As Strategy Evolves

Stage 1 organizations are small businesses managed by a single owner-entrepreneur who makes all decisions and directly oversees daily operations. Stage 2 organizations grow larger requiring group management as one person can no longer handle everything. Stage 3 consists of larger single-business organizations operating across a wide geographical area through decentralized units following corporate policies but tailored to local needs. Stage 4 includes large, diversified companies with business units decentralized by line of business and each headed by a general manager with profit responsibility across functions.

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How Structure Evolves As Strategy Evolves

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Sukesh R

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How Structure Evolves as Strategy Evolves: The Stages Model

Four distinct stages of strategy-related organization structure have singled out:

Stage1 Stage 1 organizations, are small, single-business enterprises managed
by one person. The owner-entrepreneur has close daily contact with employees
and each phase of operations. Most employees report directly to the owner, who
mates all the pertinent decisions regarding mission, objectives, strategy, and daily
operations.
Stage II organizations differ from Stage I enterprises in one essential aspect: an
increased scale and scope of operations force a transition from one-person
management to group management.
Stage III consists of organization whose operations, though concentrated in a
single field or product line, are scattered over a wide geographical area and large
enough to justify having geographically decentralized operating units. These units
all report to corporate headquarters and conform to corporate policies, but
they are given the flexibility to tailor their unit's strategic plan to meet the specific
needs of each respective geographic area. Ordinarily, each of the geographic
operating units Of a Stage III Organization is structured along functional lines.
The key difference between Stage II and Stage III, however, is that while
the functional units of a Stage II organization stand or fall together (in that
they are built around one business and one end market), the geographic operating
units of a Stage III firm can stand alone (or nearly so) in the sense that the
operations in each geographic unit are not dependent on those in other areas.
Typical firms in this category are breweries, cement companies, and steel
mills having production capacity and sales organizations m several geographically
separate market areas.
Stage IV includes large, diversified firms decentralized by line of business.
Typically, each separate business unit is headed by a general manager who has
profit-and-loss responsibility and whose authority extends across all of the unit's
functional areas except, perhaps, accounting and capital investment (both of which
are traditionally subject to corporate approval). Both business strategy decisions
and operating decisions are concentrated at the line-of-business level rather than at
the corporate level