Does structure follow strategy?
A key message of this chapter is that strategy and structure should fit together. But which determines which?
Alfred Chandler, Professor of Business History at Harvard Business School, proposes one of the fundamental rules of strategic management: ‘unless structure follows strategy, inefficiency results’.1 This logical sequence fits the ‘design’ lens for strategy, but does assume that structure is very much subordinate to strategy: structure can easily be fixed once the big strategic decisions are made. But some authors warn that this dangerously underestimates structure’s role. Sometimes strategy follows structure.
Chandler’s rule is based on the historical experience of companies like General Motors, Exxon and DuPont. DuPont, for example, was originally an explosives company. During the First World War, however, the company anticipated the peace by deliberately diversifying out of explosives into new civil markets such as plastics and paints. Yet the end of the war plunged DuPont into crisis. All its new businesses were loss making; only explosives still made money. The problem was not the diversification strategy, but the structure that DuPont used to manage the new civil businesses. DuPont had retained its old functional structure, so that responsibilities for the production and marketing of all the new businesses were still centralised on single functional heads. They could not cope with the increased diversity. The solution was not to abandon the diversification strategy; rather it was to adopt a new structure with decentralised divisions for each of the separate businesses. DuPont thrives today with a variant of this multidivisional structure.
D. Hall and M. Saias accept the importance of strategy for structure but warn that the causality can go the other way.2 An organisation’s existing structure very much determines the kinds of strategic opportunities that...