Paper: 03, Strategic Management

Module: 22, Structural Implementation

Prof. S P Bansal
Principal Investigator Vice Chancellor
Maharaja Agrasen University, Baddi

Co-Principal Investigator Prof YoginderVerma

Pro–Vice Chancellor
Central University of Himachal Pradesh. Kangra. H.P.

Paper Coordinator Dr. Anil Gupta

Senior Assistant Professor
University of Jammu, Jammu 180006.

Content Writer Farah Choudhary

The Business School
University of Jammu

Strategic Management
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 ITEM DESCRIPTION OF MODULE

Subject Name MANAGEMENT

Paper Name STRATEGIC MANAGEMENT

Module Name/ Title STRUCTURAL IMPLEMENTATION OF STRATEGIES

Module Id 22

Pre-requisites Basic understanding of Management and its functions

Objectives Understand the concept of structure, relationship between

strategy and structure, different organisation structure and
structures used for implementing strategies.
Keywords Strategy, Organisation Structure, structural implementation

Module 1 : Structural Implementation of Strategies

1. Learning Outcomes
2. Structure
3. Relationship between structure and strategy
4. Importance of structural implementation
5. General Grand Strategies
6. Different organisation structure
7. Structure for different strategies
8. Summary

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 1. Learning Outcomes

After studying this module, you shall be able to

1. Understand the concept of structure and strategy
2. Learn about the link between strategy and structure
3. Learn about the various organisation structures
4. Understand various structures for implementing different strategies

2. Structure

Structure refers to how the workers within a business are organised and how they relate to each other.
Structure defines how activities such as task allocation, coordination and supervision are directed
toward the achievement of organizational aims.

An organisation structure specifies three key components that are enumerated below:

1. It identifies the relationships between the number of steps in the hierarchy and the span of
control of managers.

2. It specifies the grouping of individuals into departments and of departments into total
organisation.

3. It consists of plan of activities in order to ensure effective communication, harmonization and

integration of goals and objectives across departments.

The first two components constitute the structural framework, which is vertical structure created
through the process of differentiation that involves division of labour and specialization. The third
component refers to the pattern of interactions among various constituents of the organisation and is
the horizontal structure, created through the process of integration that involves cross-functional
information systems and teamwork. Exhibit 1.1 shows these structures.

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 Exhibit 1.1: Vertical and Horizontal integration

Vertical structure dominant:

Specialized tasks
Hierarchy of authority
Vertical communication & formal
reporting systems
Centralized decision making
Emphasis on efficiency

Horizontal structure
dominant:
Shared tasks Rules &
Flexible authority
Horizontal communication &
sharing of information
Decentralised decision making
Emphasis on learning
Source: Kazmi, 2010. Strategic Management and Business Policy, 3rd Edition

3. Relationship between Structure and Strategy

The plan which identifies how an organisation will utilize its major resources can be defined as the
strategy of an organisation. In other words, an organization’s strategy is a route plan aimed at staying
in good shape with clients and vendors and reaching specific aims and objectives of the organisation.
However, the manner in which different sections of the organization fit together internally is an
organization’s structure. For the organization to achieve its goals, the strategy and the structure must
complement each other seamlessly.

The research done by Chandler indicates the matching of organisation structure to the various needs
and requirements of strategy, the structure follows strategy. Chandler‘s (1962) statement ‘Structure
follows strategy’ implies that every organizational structure is mainly developed based on the strategy
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 of the organization and therefore successful implementation of an organization‘s strategy will depend
on the firm‘s primary organizational structure.

Though Chandler’s research suggests that change in strategy requires structural change for achieving
economic efficiency, succeeding researches have generally supported the idea that structure and
strategy have a two-way, reciprocal relationship. The structure flows from the strategy.

Exhibit 1.2 presents a two-way relationship of structure and strategy. It shows that the strategy
determines the structure in a major way. When a company opts for large scale changes, it must take
into consideration every aspect of the structure required to support the strategy which is the only way
to implement long-term development. Every part of an organization and every person working for that
organization needs to focus on supporting the vision and direction. How everything is done and
everything operates needs to be integrated so that all efforts and resources compliment the strategy. It
does this by providing the necessary infrastructure and administrative mechanisms that enable
implementation of the chosen strategy. The structure conversely impacts the strategy, but to a lesser
extent. The structure once established might support or preclude the selection of some types of
strategies and thereby, affect the strategic choice. Ideally, the structure of an organisation should be
such that it enables a smooth implementation of the chosen strategies, support operational flexibility to
improvise and revamp as implementation moves on and facilitates the choice of future strategies.

Exhibit 1.2: Interrelationship of structure and strategy

STRATEGY determines STRUCTURE

affects

Source: Kazmi, 2010. Strategic Management and Business Policy, 3rd Edition pp 348

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 The two-way relationship between strategy and structure helps us to understand what structural
implementation is. It is the continual process of matching the structure of an organisation with its
chosen strategy.

4. Importance of structural implementation

When a company opts for a new or revised strategic plan, then new or modified strategies are also
adopted. The implementation of these strategies starts taking place. As they are implemented,
managers notice mismatches that occur owing to a variety of reasons. For instance, the administrative
mechanisms in the organisation may not be relevant to the strategies being implemented or
interdepartmental conflicts may arise. As a consequence of these mismatches, the performance
declines, leading to a reduction in effectiveness. When the structure is changed appropriately so as to
resolve the problems, performance improves, leading to better effectiveness. This cyclical process goes
on as new strategies are implemented.

Exhibit 1.3: Why is structural implementation needed?

Strategic plan is New strategies put Implementation of Mismatches occur

implemented in place new strategies

Performance Structure is changed Effectiveness is Performance

improves reduced declines
An example from the competitive insurance industry in India could serve our purpose to understand
how strategy and structure interact. Sometimes in 2003, the top management at Bajaj Allianz realised
that its multi-layered pyramidal structure with centralised authority may not work in the current and
emerging scenario. There was a CEO assisted by deputy chief operating officer, chief financial officer,
president of R&D and heads of sales and marketing. At the operational level, the underwriting
authority of the branch head was limited and proposals were sent up to the head office for decisions,
leading to delays and customer dissatisfaction. The capacity of the company to service clients was
limited and it had a narrow product and service portfolio. As a result, the company could only have

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 small individual policies placing restrictions on growth. Post-2004, the company went into high gear
and started implementing a rapid expansion strategy. Authority was decentralised, with branch offices
given autonomy to accept or reject proposals. Branch managers were handed the responsibility to
prepare their targets and focus on high net worth individuals to raise revenue. The product portfolio
was strengthened and the distribution network was expanded. Of course, there was some heartburn
among the existing top managers and quite a few left the company. The company had to poach
mangers from rivals to make up for the shortfall. The net result of the structural implementation is that
the company is able to perform effectively and regularly posts good financial results.

5. General Grand Strategies

Porter in the year 1980 gave the generic strategies of product differentiation, cost leadership and focus.
He showed that firms which are looking to control the market should opt one of the three. Firms which
applied a combination, according to him, were stuck in the middle and lost efficiency and effectiveness
thus lost competitive advantage. Several grand strategies have been postulated and show a multiplicity
of ready to use strategies to gain competitive advantage. Exhibit 1.4. below shows the combinations
based on market growth and competitive position.

Exhibit 1.4: Grand Strategy Matrix

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 Source: Kim and Mauborgne, (2005), Blue Ocean Strategy. Harvard Business Press.

6. DIFFERENT ORGANISATION STRUCTURE

There are several types of structures that are found in organisations. Here, some major types of ‘pure’
structures with special emphasis on their appropriateness for the different types of strategies. In
practice, the actual organisational structure may be a combination of these pure structures. Such
structures are called as hybrid structure.

FUNCTIONAL STRUCTURE

The most commonly used structure is functional or centralized type because this structure is the
simplest and least expensive of the other structures. An example of the typical functional structure is
shown in Exhibit 1.5. Besides being simple and inexpensive, a functional structure also promotes
specialization of labour, encourage efficient use of managerial and technical talent and provide time for
the top management to focus on strategic decisions. But there are some disadvantages also of this
structure like that it forces accountability to the top, line/staff conflicts, poor delegation of authority
and inadequate planning for products and markets. Functional structures are found in firms with a
single or narrow product focus and such firms require well-defined skills and area of specialization to
acquire competitive advantages in providing products and services. For example, Airtel has a
functional structure. The transformed organizational structure have two separate Customer Business
Units (CBU) with main focus on B2C (Business to Customer) and B2B (Business to Business)
segments. Bharti Airtel's B2C business unit caters the retail consumers, homes and small offices, by
combining the previous business units— Mobile, Telemedia, Digital TV etc. The B2C organization
consists of Consumer Business and Market Operations. Today Airtel is the largest telecommunication
company in India.

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 Exhibit 1.5: Functional Structure

Source:
http://www.businessmate.org/Article.php?ArtikelId=184

DIVISIONAL STRUCTURE

Exhibit 1.6: Divisional Structure

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 Source: https://sameh.wordpress.com/2006/05/13/a7/

The divisional structure is the second most common type of structure in U.S businesses. Exhibit 1.6
shows a type of divisional structure in which work is divided on basis of product lines. The divisional
structure can be organized in one of the four ways: by geographic area, by product or service, by
customer, or by process. For example, Tata Steel, the organisation structure of the Tata Steel can be
divided into 3 levels, each level having distinct roles and responsibilities. These three levels are namely
upper management, senior management and the middle management. Each of the lower levels is
accountable to perform its duties and responsibilities and thereby report to the next higher level in the
organization on a regular basis. Overall, we can say that the company has a flat structure, beginning
from the top management to the lowest level of management.

Also we can take an example of Ford Motor Company’s organizational structure which is build on
business requirements in changing market conditions around the world. Ford Motor Company’s
organizational structure is divided according to geographical markets. Ford’s organizational structure
has the benefit of ensuring global direction and control. Also, the global functional groups maintain
hierarchy through functional support, such as HR management to maintain Ford’s personnel. In
contrast, the large regional geographic divisions have the advantage of effortlessly applying
incorporated plans and policies throughout Ford’s organizational structure.

The main advantage of this type of organisation structure is that the accountability is clear. Also it
generates quick response to environmental changes affecting the businesses of different divisions. But
with these advantages there are a few disadvantages also like in this structure inconsistency arises from
the sharing of authority between the corporate and divisional levels and also in this type of structure
there are problems in the allotment of funds and company’s expenditure.

STRATEGIC BUSINESS UNIT

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 It is an additional layer of management due to the need to improve strategy implementation, to promote
synergy and to gain greater control over the firm‘s diverse business units. The adoption of this type of
structure by management is as a result of firms encountering difficulty in assessing and managing the
operations of their departments as the diversity, size and number of these units continues to increase.
Conceptually an SBU is ‘a discrete element of the business serving specific product-markets with
readily expected competitors and for which strategic planning can be carry out’. Exhibit 1.7 provides a
diagram of an SBU organisation structure. The disadvantages of an SBU structure are that it requires
an additional layer of management, which increases salary expenses. Also, the role of the group vice
president is often ambiguous. However, these limitations often do not outweigh the advantages of
improved coordination and accountability. Another main advantage of this structure is that it facilitates
strategic management and control of large and diverse organisations. For example: Nestle, they have
business in coffee (Nescafé), bottled water, other beverages, dairy products, chocolate, ice cream,
infant foods, performance and healthcare nutrition, seasonings, frozen and refrigerated foods,
confectionery and pet food. Each business must be treated as a strategic business unit so each SBU can
concentrate in each market by their own expertise, instead of guided by one centralized CEO.

Exhibit 1.7 Example of SBU

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 Source: http://cdn.yourarticlelibrary.com/wp-content/uploads/2014/12/clip_image00816.jpg

MATRIX STRUCTURE

Exhibit 1.8: Matrix Structure example

Source: http://cdn.yourarticlelibrary.com/wp-content/uploads/2014/12/clip_image00629.jpg

A matrix structure (Exhibit 1.8) is the most complex of all design as it depends on both vertical and
horizontal flows of authority and communication. The matrix structure allows effective knowledge
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 management since separate areas of skills and resources will be integrated across organizational
boundaries. This structure provides dual channels of authority, performance responsibility, evaluation
and control. Subordinates are assigned both to a basic functional area and a project or product manager.
Thus, the matrix structure simplifies and amplifies the focus of resources on a narrow but strategically
important product, project or market. The advantages that matrix structure offers are that it facilitates
use of specialized personnel, equipments and facilities. Also it offers a clear project objectives and
workers can see the visible result of their work. For example, Wal-Mart uses Matrix structure. Wal-
Mart's advantage is because each division of the company focuses its efforts on specific goals such as
product, service, or customers. Narrowing the focus really allows the company to perform more
effectively because they are allowed to pinpoint specific areas needing change and adjust
appropriately. But there are few limitations also of this structure such as that it requires a high level of
vertical and horizontal combination which can lead to communication problems.

VIRTUAL STRUCTURE

Exhibit 1.9: Virtual Structure Example

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 Source: http://www.referenceforbusiness.com/management/Tr-Z/Virtual-Organizations.html

Virtual organizational structure connects different departments through the net. This is a situation
where departments are located in different geographical locations but are networked and operate as
though they are in the same building. It brings in advantages because departments can be located where
it is most appropriate. Exhibit 1.9 shows a type of virtual organisation structure.

There are a lot many computer organizations that have applied variety of this new virtual structure such
as Apple Computer and Sun Microsystems. When Apple Computer linked its easy-to-use software with
Sony's manufacturing skills in miniaturization, Apple was able to get its product to market quickly and
gain a market share in the notebook segment of the PC industry.

7. STRUCTURE FOR DIFFERENT STRATEGIES

There are different type structures that are adopted for different type of strategies at the corporate and
business level. Let us discuss each strategy in detail.

STRUCTURES FOR BUSINESS STRATEGIES

There are different types of Business strategies such as cost leadership, differentiation or focus
strategies. Each of these strategies creates a different set of requirements and therefore requires a
different organisation design with a different structural arrangement.

Why do organisations adopt cost leadership approach? First, they want to sell large quantities of
product or services to a lot of customers in the industry or a segment and secondly they want to reduce
costs to bare minimum. A cost leadership strategy, as shown in Exhibit 1.10 would require an
efficiency approach to organisation design. This means a clear-cut, centralised authority to direct
actions, backed by stringent controls to keep a close check on costs. Regular working procedures
would guide employees in performing routine tasks under close supervision. There would be less self-
rule for the employees and more emphasis on strong leadership. Decision making authority could be
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 centralized in a staff function, to emphasis cost reduction in all functional areas. In terms of
importance, operations could be the main functional area. Jobs would have to be highly specialized so
that there is high level of employee efficiency, reducing per unit cost of the product or service. Overall
the structure could be mechanistic.

Exhibit 1.10: Organisation design for business strategies

CEO CEO

R&D Mktg
Centralised
staff

Fi HRM Mktg Oper Fin HRM Oper

n
Organisation design for attaining cost Organisation design for attaining differentiation
leadership  Learning orientation
 Efficiency orientation  Flexible, loosely-knit authority
 Strong central authority  Stress on horizontal coordination controls
 Tight cost controls  Strong capability in R&D
 Detailed control reports  Standard operating procedures
 Standard operating procedures  Reward for risk taking
 Close supervision  Broad guidelines to performance of
 Routine tasks activities
 Limited or no employee  Liberal amount of employee
empowerment empowerment

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 (Source: Comparison of organisation designs from R.L Daft, Organisation Theory and Design, Mason, Ohio,
South-Western, 2004, pp 63-64)

STRUCTURE FOR CORPORATE STRATEGIES

Corporate strategies of integration, diversification, internationalization, cooperation, digitalization and

retrenchment generate differing requirements to be satisfied by different organisation designs and
structures. Under the corporate strategy of concentration, the organisation does not require structural
changes. The only change in the organisation design may be an added emphasis on marketing for
market penetration and development and R&D and operations for product development strategies.

Structures for integration strategies

Vertical integration and horizontal integration are two business strategies that companies use to
consolidate their position among competitors. Horizontal integration generates commitment to adjacent
businesses. Organisation design and structure may have to be changed to accommodate those adjacent
businesses. Addition to the existing structure may lead the organisation to create a geographical or
product structure to accommodate to the requirements of horizontal integration. For instance, after
reaching a certain heights, Walt Disney has been considering ways to expand and increase profits.
Disney was established as an animation studio focusing children and families, which also represent
their currently core target audience. However, in the process of diversifying and rising their company,
Disney did a horizontal integration into live action films (For example, Pirates of the Caribbean series).
In this manner the company managed to reach new audiences and control a larger segment of the film
industry. Under vertical integration, the organisation extends itself either backward to raw material or
forward to the customers. These strategies would create requirements for the structure to be extended
accordingly. For example Zara, a Spanish clothing and accessory company, has more than 1,000
outlets worldwide. The reason for their success is vertical integration – from design to manufacture to
retail. Unlike companies like Gap and A&F that purchase their clothes from suppliers, Zara makes

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 most of its own. Sixty percent of its goods are made in house. This helps the company to handle its
inventory with great effectiveness. It also allows the company to respond to changes like seasonal or
fashion very easily and quickly. While Gap and A&F may take up to nine months to introduce a new
line of clothing, Zara can response in two to three weeks. The firm can respond quickly to any market
contingency.

Structure for diversification strategies

Diversification strategies are implemented through multidivisional and SBU structures. Depending on
whether the diversification is related or unrelated, the structure would also reflect the differences.
Exhibit 1.11 and 1.12 presents some illustrative structures for implementing related and unrelated
diversification strategies. Observe that the corporate headquarter may retain some of the functions and
dencentralise some others, depending on the nature of diversification. Related diversification would
create the requirement of retaining linkages among functions and departments within the organisation
so that synergies can play a role in creating economies of scope. Unrelated diversification implemented
mainly through the multidivisional structure, could ignore such linkages in favour of divisional
autonomy to pursue a different line of business.

Exhibit 1.11: Suggested Structure for Related Diversification

CEO

Legal PR

Corporate Corporate Corporate Corporate

Finance HRM Marketing Operation

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 Strategic Strategic Strategic Strategic
Business Unit A Business Unit B Business Unit C Business Unit D

(Source: Structures adapted from M.A. Hitt, R.D.. Ireland & R.E. Hoskisson, Strategic Management:
Competitiveness and Globalization, Mason, Ohio, South-Western, 2007, pp. 347-353)

Exhibit 1.12: Suggested Structure for Unrelated Diversification

CEO

Corporate Corporate Corporate Corporate PR

Finance HRM Legal

Division A Division B Division C Division D

(Source: Structures adapted from M.A. Hitt, R.D.. Ireland & R.E. Hoskisson, Strategic Management:
Competitiveness and Globalization, Mason, Ohio, South-Western, 2007, pp. 347-353)
Structure for Internationalisation Strategies

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 There are four types of internationalisation strategies: international, multi domestic, global and
transnational. Each of these strategies creates its own requirements for organisation design and
structure. A model that shows the appropriate structures for each of these internationalization strategies
is presented in Exhibit 1.13.

Exhibit 1.13: Structures for international strategies

Global Strategy Transnational

Strategy

Global Product Global Matrix

Structure structure

International Strategy Multidomestic

Strategy

International
Source: Adapted from R.E. Division
White & T.A. Global
Poynter, Geographic
“Organizing for worldwide advantage”, Business
Quarterly Summer, 1989, Structure
pp. 84-89 Structure
Exhibit 1.14: International Strategies: International Division Structure

Exhibit 1.15: Global Strategies: Global Product Structure

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 Exhibit 1.16: Multi Domestic Strategies: Global Geographic Structure

Exhibit 1.17: Transnational Strategies: Global Matrix Structure

Structure for Cooperative Strategies

Cooperative strategies are used in the cases of friendly mergers and acquisitions, joint ventures and
strategic alliances. The appropriate organisation design and structure for implementing cooperative
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 strategies are network organisation structure within, with a combination of network of organisations
outside.

Structure for Digitalisation Strategies

The digitalization of information has profound implications for strategy as well as for the organisation
design. Structure for implementing digitalization strategies may not be very different from those used
for implementing other types of corporate strategies. The differences arise in the way the digitalization
impact the organisation design. For example, digitalization may impact process design in an
organisation, resulting in structural changes. Or digitalization may help create a flexible organisation
structure and opening up an organisation to enter into a greater number of interorganisational
relationships. The impact of information technology on organizational design is seen in terms of
several factors such as these: emergence of smaller-sized organisations decentralized organizational
structures, improved horizontal coordination, improved interorganisational relationships and enhanced
modular structures.

Structure for Retrenchment Strategies

Retrenchment does not involve significant organisation design and structural changes. It may result in
hiving off departments or divisions that are retrenched resulting in curtailed structures.

8. Summary

 Structure is an approach in which different activities of management required to implement a

strategy are arranged.
 In setting the strategies, a firm is required to change its structure so that it can better
implement the strategies. Structure follows strategy. The development of organizational
structure is primarily based on the firm‘s strategy.
 There are different strategies that can be used to implement different organisation structure.
These organisation structures have their own pros and cons.

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  Further there are different structures that are used at different strategic level and for
implementing various business and corporate strategies.

REFERENCES
 David, F. R. (2011). Strategic Management – Concepts and Cases. 13th Edition. New Jersey:
Prentice Hall.
 Kazmi, A. (2010). Strategic Management and Business Policy. 13th Edition. New Delhi: Tata
McGraw Hill.
 Nag, A. (2011). Strategic Management – Analysis, Implementation, Control. New Delhi: Vikas
Publishing.
 Kim and Mauborgne, (2005), Blue Ocean Strategy. Harvard Business Press.

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