Jay R. GalbRaith abstract: This article extends alfred Chandler’s seminal ideas about organizational strategy and structure, and it predicts the next stage of organizational evolution. Chandler described the evolution of vertical integration and diversification strategies for which the functional and multidivisional structures are appropriate. He also explained how the dominant structure at any point in time is a concatenation, or accumulation, of all previous strategies and structures. I extend Chandler’s ideas by describing how early “structures” became “organizations” (people, rewards, management processes, etc.) and by discussing the more recent strategies of international expansion and customer focus. International expansion leads to organizations of three dimensions: functions, business units, and countries. Customer-focused strategies lead to four-dimensional organizations currently found in global firms such as IBM, Nike, and Procter & Gamble. I argue that the next major dimension along which organizations will evolve is emerging in firms which are experimenting with the use of “Big Data.” Keywords: Organization design; organization structure; strategy and structure
a major stream of thought in organization design is the evolution of the structure of the total enterprise. The origin of this idea is the historical study Strategy and Structure by Alfred Chandler (1962). This work, by a business historian, was picked up by organization theorists, strategic management theorists, economists, and sociologists. It led to a virtual explosion of conceptual and empirical studies of American, British, German, French, Italian, and Japanese enterprises (Franko, 1976; Stopford & Wells, 1972). Then, like many thought streams in organization and management theory, interest in it declined. In this article, I return to Chandler’s concept of structural evolution and extend it to include today’s global enterprise designs. This extension is based largely on my work as a practitioner, helping global companies as they develop the next phase of their growth strategies and enterprise structures.
StRateGy, StRuctuRe, anD cOncatenatiOn
Chandler’s idea that “structure follows strategy” is one of the best-known organizational concepts in business. His concept of concatenation, or accumulation, is virtually unknown. “The thesis... is then that structure follows strategy and that the most complex type of structure is the result of the concatenation of several basic strategies” (Chandler, 1962: 14). Concatenation drives the complexity of today’s organizations but is also a management contradiction. Almost every leader is a champion of simplicity. But while leaders are saying “Keep it simple,” they are acting to implement ever more complex strategies and structures. What is driving this contradiction?
Concatenation, the accumulation of simple strategies into increasingly complex structures, is at the core of Chandler’s argument about structural evolution. Chandler explains the concept 1
Journal of Organization Design JOD, 1(2): 1-13 (2012) DOI: 10.7146/jod.1.2.6342 © 2012 by Organizational Design Community
Jay R. Galbraith
The Evolution of Enterprise Organization Designs
with the example of a start-up firm in a single location and with a single business function – such as a distributor. The first simple strategy emphasized by the distributor is volume expansion, which leads to a simple structure where an administrative office is created to manage the business. The next simple strategy is geographic dispersion. This new strategic emphasis results in adding a distribution department headquarters to administer the several distribution field units. The resulting, more complex structure is shown in Figure 1. CEO
Fig. 1. Multidivisional Structure of Two Dimensions: Divisions and Functions