Firms Strategy and Structure

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Management and Strategy Essay Notes


Top managers perceptions of the market structure and firms strengths and weaknesses determine their choice of corporate strategy and organisational structure Both corporate strategy and organisational structure influence the economic performance of the firm and the market in which it sells One of the main goals for strategy implementation is to achieve synergy between functions and business units (Hunger and Wheelen)

Organisational Structure

Organisational Structure – arrangement whereby the firm motivates, co-ordinates, appraises, and rewards the inputs and sources that belong to its coalition It is a process of choosing arrangements that maximise the value of the firms chosen strategy

Other factors affecting organisational structure

•Market processes surrounding the unit
•Influence of competition
•Uncertainty – relate to Chandler – The external environment is uncertain therefore companies are forced to change their structure to comply with the changing environment


•Organisational structures and strategy making are highly interdependent and must be complementary in many ways to ensure good performance under challenging conditions •Findings of the study illustrate that relationships between strategy making and structure were usually strongest among successful and innovative firms and seemed to contribute the most to performance in sizeable and innovative firms •The structure of an organisation importantly influences the flow of information and the context and nature of human interactions •Channels collaboration, specifies modes of co-ordination, allocates power and responsibility, and prescribes levels of formality and complexity – elements which would influence the making of strategy •Collaboration and the co-ordination of functions within the firm will allow for an efficient flow of information which will contribute to attaining synergy between each of the business functions •Structural and strategy-making sophistication represent complementary modes of adaptation which kept properly aligned will enhance performance

Mechanistic Structures

•Organisational structure characterised by close adherence to the established chain of command, highly specialised jobs and vertical communications •Useful for company's in a stable environment
•Centralisation of authority means top management has the freedom to commit sufficient resources for a particular project which will assist in implementing strategies effectively to achieve company objectives •This is primarily in the form of a bureaucratic organisation •Formalisation of policies and procedures can reduce assertiveness, increasing the likelihood that strategic processes will be motivated by reactive as opposed to proactive behaviour which can have huge implications for a firm as it may miss out on significant opportunities impacting on the firm's performance. In addition to this problems that may arise will increase business costs – prevention is better than cure •Does not suit entrepreneurial firms and firms which are in an uncertain and unstable environments therefore these firms have adopted an organic approach •Functional departmentalisation

Functional Structure

Functionally specialised firms sub-divide their activities into departments which undertakes a specific function e.g. Marketing, Finance, Production etc. Head of departments reports to a chief co-ordinator who is responsible for the continuous reconciliation of sub-goals set for each department Can achieve economies of specialisation and scale and reduce number of communication levels between members of the firm allowing for greater interaction, therefore effective decision making to facilitate an...
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