CHAPTER SEVEN: ORGANISATIONAL STRATEGY AND STRUCTURE

Organizational structure and strategy are intertwined aspects of

business management that collectively determine how a company
functions and achieves its goals. A clear understanding of their
relationship is critical for driving efficiency, adaptability, and competitive
advantage.

Organizational Structure

Organizational structure refers to the framework within which activities

are coordinated, decisions are made, and roles and responsibilities are
defined. It serves as the backbone for implementing the organization’s
strategy.

The organizational framework that dictates roles, responsibilities,

communication channels, and decision-making processes.

Example: A hierarchical structure with clear chains of command.

Strategy:

A comprehensive plan that outlines how an organization will achieve its

goals and gain a competitive advantage in its market.

Example: A company adopting a cost-leadership strategy to compete on

price.

The Link Between Strategy and Structure

"Structure follows strategy":

This principle, popularized by Alfred Chandler, emphasizes that an
organization’s structure should evolve to support its strategic objectives.
As strategies change in response to market dynamics, the structure must
adapt accordingly.

Mutual Influence:
While strategy often drives structural changes, the existing structure can

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also influence the formulation and execution of strategies. An overly
rigid structure may constrain innovation and strategic flexibility.

Key Aspects of Strategy and Structure Alignment

Strategic Fit: Ensuring the organizational structure supports the

strategy’s execution, such as aligning resources, processes, and
personnel with strategic goals.

Flexibility: Adapting structures to accommodate new strategies, such as

entering new markets or adopting innovative technologies.

Coordination and Communication: Establishing clear communication

channels to ensure that strategic objectives are understood and
implemented across all levels.

Accountability: Assigning responsibilities within the structure to monitor

and drive strategic initiatives.

Types of Structures Supporting Different Strategies

Functional Structure:

o Best suited for organizations with a single or narrow focus.

o Example: A company with departments for marketing,
finance, and operations.

Divisional Structure:

o Ideal for diversified organizations operating in multiple

markets or industries.
o Example: A conglomerate with divisions for automotive,
healthcare, and consumer electronics.

Matrix Structure:

o Combines functional and project-based structures to foster

collaboration and flexibility.

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 o Example: A technology firm developing products that
require input from multiple departments.

Network Structure:

o Emphasizes partnerships and outsourcing, suitable for

global or highly dynamic markets.
o Example: An organization leveraging third-party logistics
providers for supply chain operations.

Challenges in Aligning Strategy and Structure

Resistance to Change: Employees may resist structural changes,

especially if they alter roles or reporting lines.

Complexity: Balancing strategic priorities with the operational intricacies

of large or global organizations.

Inertia: Organizations with rigid structures may struggle to pivot quickly

in response to market changes.

Cost Implications: Restructuring efforts can be costly and disruptive in

the short term.

Benefits of Strategy and Structure Alignment

Improved Performance: Aligning structure with strategy enhances

efficiency and effectiveness.

Enhanced Flexibility: A well-aligned structure allows the organization to

adapt to changes more readily.

Clear Accountability: A defined structure ensures that strategic

initiatives have clear ownership.

Competitive Advantage: Organizations with aligned strategies and

structures can execute plans faster and more effectively than
competitors.

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Strategy and structure are interdependent elements that form the
foundation of organizational success. A well-defined strategy provides
direction, while an appropriate structure ensures effective execution. By
continuously aligning strategy with structure, organizations can remain
agile, competitive, and poised for long-term success.

Key Elements of Organizational Structure

Hierarchy:

o The levels of authority and the reporting lines within an

organization.
o Examples: CEO → Managers → Employees.

Span of Control:

o The number of subordinates a manager oversees.

o Narrow span: Tight control but more layers of management.
o Wide span: More autonomy but potential for oversight
challenges.

Division of Labor:

o The way tasks and responsibilities are divided across roles

or departments.

Coordination and Integration:

o Mechanisms to ensure alignment between departments or

teams, such as cross-functional meetings or shared goals.

Formalization:

o The degree to which roles, procedures, and rules are

documented and standardized.

Types of Organizational Structures

Functional Structure:

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 o Organizes the company by specialized functions (e.g.,
marketing, finance, operations).
o Advantages: Efficiency, clear specialization, economies of
scale.
o Challenges: Siloed communication, lack of coordination
between functions.

Divisional Structure:

o Organized by products, services, or geographic regions.

o Advantages: Focus on specific markets, improved
accountability.
o Challenges: Duplication of resources, potential competition
between divisions.

Matrix Structure

o Combines functional and project-based structures.

o Advantages: Flexibility, collaboration across functions.
o Challenges: Complex reporting lines, potential for role
conflicts.

Flat Structure:

o Minimal layers of management, emphasizing employee

autonomy.
o Advantages: Quick decision-making, higher employee
engagement.
o Challenges: Less clear accountability, potential for chaos in
larger organizations.

Network Structure:

o A decentralized structure that relies on partnerships and

outsourcing.
o Advantages: Flexibility, cost-efficiency.
o Challenges: Dependence on external partners, reduced
control.

Strategy

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Strategy defines an organization’s long-term goals and the actions
required to achieve them. It guides decision-making and provides a
roadmap for success.

Levels of Strategy:

Corporate Strategy:

o Focuses on the overall scope and direction of the

organization.
o Example: Diversifying into new industries or markets.

Business Unit Strategy:

o Centers on how individual business units compete in their

markets.
o Example: Adopting a differentiation strategy to stand out
from competitors.

Functional Strategy:

o Involves strategies at the departmental level to support

higher-level goals.
o Example: Developing a digital marketing strategy to
enhance online presence.

3. The Relationship Between Structure and Strategy

The alignment of structure with strategy is critical for ensuring that

organizational goals are achieved effectively. This alignment can be
summarized as:

Structure Follows Strategy:

o An organization must adapt its structure to support new

strategies. For instance, a company adopting a global
strategy might need a divisional structure organized by
regions.

Mutual Influence:

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 o While strategy often drives structural changes, the existing
structure can also constrain or influence strategic choices.

Dynamic Alignment:

o Organizations must continuously adapt their structure to

align with evolving strategies, especially in dynamic
industries.

Impact of Misalignment

When structure and strategy are not aligned, the following issues can
arise:

Inefficiency: Resources are wasted due to poor coordination or

duplicated efforts.

1. Confusion: Employees may not understand their roles or how they

contribute to strategic goals.
2. Resistance to Change: Structural rigidity can make it harder to
implement new strategies.
3. Loss of Competitive Advantage:; Delays in adapting to market
changes can erode a company’s market position.

Challenges in Aligning Structure and Strategy

1. Rapid Market Changes: External factors like technology and

competition may necessitate frequent strategy adjustments.
2. Cultural Resistance: Employees and managers may resist
structural changes due to fear of uncertainty.
3. Complexity in Large Organizations: Aligning strategy with
structure becomes more challenging in diverse, multinational
organizations.

Tools for Aligning Structure and Strategy

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 1. Strategic Mapping: Visual tools to connect strategy with
operational goals and structural components.
2. Balanced Scorecard: A framework for translating strategic
objectives into measurable outcomes across departments.
3. Change Management: Processes to ensure smooth transitions
during structural adjustments.
4. Regular Reviews: Periodic evaluations to ensure structure remains
aligned with strategy.

Real-World Examples

Apple Inc.: Uses a functional structure to support its innovation-driven

strategy, with clear roles in design, marketing, and technology.

Unilever:Adopts a divisional structure organized by regions and products

to address diverse markets effectively.

Tesla: Maintains a flat structure to support its agility and rapid decision-
making, aligning with its focus on innovation and market disruption.

Organizational structure and strategy are inseparable components of

effective management. A well-designed structure enables the efficient
execution of strategic goals, while a robust strategy provides direction
and purpose. Achieving and maintaining alignment between these
elements is essential for organizational success in a competitive and
dynamic business environment.

Structuring Supply Chain Management to Support Strategy

The supply chain plays a vital role in achieving an organization's strategic

objectives. Structuring supply chain management (SCM) effectively
ensures alignment with the overall business strategy, enabling efficiency,
resilience, and competitive advantage.

Key Principles of Structuring SCM to Support Strategy

Strategic Alignment:

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 o Align supply chain operations with the organization's long-
term goals, such as cost leadership, differentiation, or focus.
o Example: A cost-leadership strategy emphasizes low-cost
sourcing and efficient logistics, while a differentiation
strategy may prioritize quality and innovation.

Customer-Centric Design:

o Structure the supply chain to meet customer needs and

expectations, such as faster delivery times or customized
products.
o Example: E-commerce companies structure their supply
chain around last-mile delivery and personalization.

Agility and Flexibility:

o Create a supply chain that can quickly adapt to market

changes, demand fluctuations, and disruptions.
o Example: Using multi-modal logistics and flexible sourcing
strategies to respond to dynamic market conditions.

Integration Across Functions:

o Ensure seamless coordination between procurement,

manufacturing, logistics, and distribution to enhance
efficiency and reduce costs.

Steps to Structure SCM to Support Strategy

Define Strategic Objectives:

o Identify how the supply chain contributes to achieving

corporate and business-level goals.
o Example: For a sustainability-focused strategy, the supply
chain should emphasize eco-friendly sourcing and reduced
carbon emissions.

Segment the Supply Chain:

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 o Divide the supply chain into segments tailored to different
product lines, customer groups, or geographies.
o Example: High-margin products may require a specialized,
responsive supply chain, while low-margin products benefit
from efficiency-focused operations.

Optimize Network Design:

o Determine the optimal location of suppliers, manufacturing

facilities, distribution centers, and warehouses.
o Example: A global company may use regional hubs to
minimize transportation costs and delivery times.

Adopt Technology and Innovation:

o Leverage advanced technologies like Artificial Intelligence

(AI), Internet of Things (IoT), and blockchain for real-time
monitoring, automation, and transparency.
o Example: Using predictive analytics to forecast demand and
optimize inventory levels.

1.

Build Strong Supplier Relationships:

o Collaborate with key suppliers to ensure alignment with

strategic goals, such as quality, cost, or sustainability.

Focus on Risk Management:

o Structure the supply chain to mitigate risks through

diversification, contingency planning, and resilience
strategies.
o Example: Dual-sourcing critical components to reduce
dependence on a single supplier.

Elements of a Well-Structured Supply Chain

Procurement and Sourcing:

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 o Align sourcing strategies with organizational goals, such as
cost reduction or sustainability.
o Example: Strategic sourcing from suppliers who adhere to
environmental and ethical standards.

Production and Manufacturing:

o Align production systems with demand and strategic

objectives, such as lean manufacturing or mass
customization.
o Example: Implementing Just-in-Time (JIT) manufacturing to
minimize waste.

Distribution and Logistics:

o Optimize the movement of goods to ensure timely and cost-

effective delivery.
o Example: Adopting third-party logistics (3PL) providers for
specialized transportation services.

Inventory Management:

o Align inventory policies with customer demand and

organizational strategy.
o Example: For a low-cost strategy, maintaining minimal
inventory levels to reduce carrying costs.

Performance Measurement:

o Use Key Performance Indicators (KPIs) to monitor supply

chain performance and ensure alignment with strategic
goals.
o Example: Metrics like order fulfillment rate, cost per unit,
and inventory turnover.

Challenges in Structuring SCM for Strategy

Complexity in Global Supply Chains: Managing operations across

multiple countries and regions increases complexity.

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Balancing Cost and Responsiveness: Achieving low costs while
maintaining high responsiveness to customer demands.

Technological Integration: Ensuring smooth adoption of advanced

technologies across the supply chain.

Risk and Uncertainty: Handling disruptions like geopolitical issues,

natural disasters, or supply shortages.

Case Examples

Amazon: Strategy: Customer-centric and cost-efficient delivery.

o Supply Chain Structure: Emphasizes warehouse automation,

advanced logistics, and last-mile delivery to enhance speed
and efficiency.

Zara:

o Strategy: Fast fashion with rapid responsiveness to trends.

o Supply Chain Structure: Vertical integration and proximity
manufacturing to reduce lead times and adapt to market
trends quickly.

Unilever:

o Strategy: Sustainability-focused.
o Supply Chain Structure: Implements eco-friendly sourcing
and green logistics to align with sustainability goals.

Structuring supply chain management to support strategy is essential for

achieving organizational objectives, improving operational efficiency,
and gaining a competitive edge. By aligning supply chain activities with
strategic priorities, leveraging technology, and addressing risks
proactively, organizations can create resilient and responsive supply
chains capable of thriving in a dynamic global market.

Cross-Functional Teams

Cross-functional teams (CFTs) are groups of individuals from different

departments, disciplines, or functional areas who come together to

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achieve a common objective. These teams play a pivotal role in fostering
collaboration, innovation, and efficiency across an organization.

Characteristics of Cross-Functional Teams

Diversity of Expertise:

Members bring varied skills, knowledge, and perspectives from their

respective functions.

Example: A new product development team may include engineers,

marketers, and finance professionals.

Common Goal: The team is unified by a shared objective, such as

launching a product, solving a problem, or improving processes.

Temporary or Permanent Nature:

CFTs may exist for short-term projects or be established as ongoing

committees.

Collaboration and Communication: Effective teamwork relies on open

communication, mutual respect, and coordination.

Shared Accountability: Success or failure is collectively owned by the

team rather than individual members.SINAPIS

Benefits of Cross-Functional Teams

Enhanced Innovation:

o Combining diverse perspectives fosters creativity and leads

to innovative solutions.
o Example: Tech companies often use CFTs to develop
breakthrough products.

Improved Decision-Making:

o Access to varied expertise enables well-rounded and

informed decisions.

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Increased Efficiency:

o Breaking down silos and improving inter-departmental

communication streamlines processes.

Faster Problem-Solving:

o Bringing all relevant stakeholders into one team reduces

delays in addressing issues.

Organizational Learning:

o Members gain insights into other functions, promoting a

holistic understanding of the business.

Challenges of Cross-Functional Teams

Conflict and Misalignment:

o Differing priorities or perspectives may lead to

misunderstandings or tension.
o Example: Marketing may prioritize speed, while engineering
focuses on quality.

Communication Barriers: Varied terminologies and working styles can

hinder effective collaboration.

Lack of Clarity: Ambiguity in roles, responsibilities, or goals can lead to

confusion and inefficiency.

Resistance to Change: Team members may struggle to adapt to a

collaborative environment, especially in traditional hierarchies.

Coordination Challenges: Managing schedules, workflows, and

expectations across functions requires significant effort.

Best Practices for Effective Cross-Functional Teams

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Clearly Define Goals and Roles: Set a clear objective and outline
individual responsibilities to minimize ambiguity.

Select the Right Members: Include individuals with the necessary skills,
experience, and willingness to collaborate.

Strong Leadership: Appoint a team leader or facilitator who can guide

the team, resolve conflicts, and maintain focus on the goal.

Foster Open Communication: Create an environment where team

members feel comfortable sharing ideas and concerns.

Leverage Technology: Use collaboration tools like Slack, Microsoft

Teams, or Asana to enhance coordination and communication.

Encourage Team Building: Organize activities to strengthen relationships

and build trust among team members.

Monitor and Evaluate Progress: Regularly assess the team’s

performance and address any challenges promptly.

Applications of Cross-Functional Teams

Product Development: Developing new products often requires input

from engineering, marketing, finance, and operations.

Process Improvement: Teams can identify inefficiencies across

departments and implement improvements.

Crisis Management: Cross-functional teams are effective in addressing

urgent challenges, such as supply chain disruptions.

Strategic Initiatives: CFTs can drive organization-wide projects, such as

digital transformation or sustainability programs.

Case Example: Cross-Functional Team in Action

Company: Apple Inc.

Objective: Develop the iPhone.
Structure: Apple formed a cross-functional team comprising experts
from design, engineering, marketing, and operations.

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Outcome: The collaboration led to the creation of an iconic product that
combined cutting-edge technology with user-friendly design,
revolutionizing the smartphone industry.

Cross-functional teams are essential for modern organizations seeking

agility, innovation, and efficiency. When effectively managed, these
teams break down silos, leverage diverse expertise, and deliver superior
results. While challenges exist, adopting best practices ensures the

Role of Cross-Functional Teams in Strategy

Cross-functional teams (CFTs) are crucial in strategy formulation and

implementation as they bridge the gap between different organizational
functions, bringing together diverse expertise and perspectives. By
aligning the collective knowledge and skills from various departments,
cross-functional teams contribute significantly to the development and
execution of strategic initiatives.

1. Enhancing Strategic Alignment

CFTs play an important role in ensuring that various functions align with
the overall organizational strategy. By including representatives from
multiple departments, these teams ensure that the strategy is well-
integrated into the day-to-day operations of the business.

 Example: In a new product development strategy, marketing,

research and development, finance, and supply chain
departments collaborate to ensure the product not only meets
customer demands but is also profitable and manufacturable.

2. Driving Innovation and Creativity

By incorporating diverse viewpoints from various functional areas, CFTs

are more likely to come up with creative and innovative solutions that
may not have been considered within a single department. This helps in
formulating strategies that can lead to competitive advantages,
particularly in dynamic industries.

 Example: In the tech industry, cross-functional teams often work

together on digital transformation strategies, combining IT,

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 marketing, and operations expertise to develop cutting-edge
solutions.

3. Facilitating Faster Decision-Making

Cross-functional teams improve decision-making speed by involving all

necessary stakeholders early in the process. With key representatives
from different functions, decisions can be made quickly, reducing delays
that typically arise from interdepartmental communication barriers.

 Example: In strategic planning, decisions on new market entry can

be made faster when finance, marketing, and operations are part
of the conversation, ensuring feasibility, customer demand, and
operational capabilities are all considered.

4. Improving Resource Allocation

Cross-functional teams provide a holistic view of the resources required

to execute a strategy. By collaborating across departments, they help
ensure that resources are allocated efficiently and that there is no
duplication of efforts, leading to a more effective implementation of
strategic objectives.

 Example: A strategy to reduce costs may involve cross-functional

teams identifying efficiencies across procurement, logistics, and
manufacturing, optimizing resource use and reducing waste.

5. Strengthening Strategy Execution

Strategic initiatives often fail due to poor execution. Cross-functional

teams help bridge the gap between strategy formulation and
implementation by providing ongoing communication and feedback
throughout the process, ensuring that strategic goals are met.

 Example: When launching a new service, cross-functional teams

from customer service, operations, and marketing ensure that the
service is delivered efficiently, customers are aware of it, and any
issues are swiftly addressed.

6. Facilitating Change Management

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Cross-functional teams are key to implementing strategic changes within
an organization. They help manage change by communicating strategy
updates across departments and ensuring alignment with the
organization's goals. These teams are essential when restructuring,
introducing new technologies, or shifting organizational culture.

 Example: When a company adopts a new supply chain strategy,

cross-functional teams ensure that logistics, IT, and operations
departments adapt seamlessly to the new systems.

7. Identifying and Mitigating Risks

Cross-functional teams bring a diverse set of perspectives that can help

identify potential risks to the strategy. By analyzing the situation from
multiple angles—financial, operational, technological, and market-
related—they help develop strategies to mitigate these risks.

 Example: When entering a new market, a cross-functional team

can assess risks related to logistics, financial costs, regulatory
compliance, and consumer behavior, creating a more robust
market-entry strategy.

8. Enhancing Strategic Communication

Cross-functional teams facilitate better communication between

departments and senior leadership, ensuring that the organization's
strategic vision is effectively communicated and understood throughout
the business. This alignment helps build a unified approach to strategy
implementation.

 Example: A cross-functional team working on sustainability

initiatives ensures that environmental goals are communicated
and supported by all relevant departments—R&D, production,
marketing, and operations.

Cross-functional teams are a cornerstone of modern strategy

development and execution. They play an essential role in aligning
organizational functions with strategic goals, driving innovation,
improving decision-making, ensuring efficient resource allocation, and
mitigating risks. By leveraging the diverse skills and perspectives of

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various departments, cross-functional teams help ensure that strategies
are not only well-planned but also effectively executed, leading to
improved

Revision questions

1. How does an organization’s structure influence the

implementation of its strategy, and what adjustments
might be necessary when transitioning to a new
strategy?
2. What are the advantages and disadvantages of aligning
an organizational structure with a centralized decision-
making approach versus a decentralized approach in
achieving strategic objectives?
3. How can a mismatch between organizational structure
and strategy create challenges for organizational
performance, and what steps can leaders take to
address this misalignment?
4.

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