Strategy and Structure

A strategy without structure is just a wish.

Leaders can sense when their organisation is not working well or if their environment has changed, rendering the operating strategy and structure obsolete.

However, the methodologies and activities involved in creating a new strategy have become too complicated and time-consuming. It doesn’t matter how many lenses you look through or the colour of your ocean.

Fundamentally only two hard questions need to be answered to understand what your overarching strategy must be.

• Should we provide our products and services to a broad range of customers, or should we focus on a narrow population segment?
• Should we attract customers by providing something unique and special to differentiate ourselves, or should we reduce our cost to the customer?

Some might argue that it is possible to adopt a hybrid model, but few have succeeded in doing so, and most who have tried end up being ‘stuck in the middle’.

Answering these questions will also provide insight into what your organisation’s structure must become to achieve the strategic aims. The axioms 'strategy sets structure' and 'structure breeds behaviour' remain true and have stood the test of time.

Assessing the structure.

Designing an organisation’s structure involves taking a complex entity, dissecting and analysing it, and rebuilding it to function better. This requires a mix of analytical work and visualisation of the data. Then add some experience with a blend of logic and creativity to design the solutions.

Don't be tempted to jump straight into implementing a new strategy without considering if the overall structure will support your future strategic goals. We say it is imperative first to decide if an organisational redesign is required. The same holds if an organisation fails to achieve its current strategy; the organisation design could be a primary factor. It's one of the biggest and most important questions an executive needs to answer:

'Do we need fundamentally to reorientate the organisational structure to achieve our strategy?'

Lean is good, but not good enough.

Operational efficiency tools like lean, six sigma, total quality management, benchmarking, time-based competition, outsourcing, partnering, or reengineering, can enhance and improve the operational effectiveness of a company but often fail to provide the company with sustainable profitability. How many lean improvement programmes have improved a process but were unable to realise a recurring financial benefit? Too many.

Operational effectiveness aims to improve similar activities and process better than rivals perform them. However, competitors quickly imitate best practices like management techniques, new technologies, lean input improvements, etc. Thus, competition based on operational effectiveness within a sector raises the bar for everyone. Such competition only produces absolute improvement in operational effectiveness and no relative improvement for anyone. The company and its competition wind up like hamsters on a wheel – running hard while standing still.

It is essential to distinguish between operational effectiveness and strategy. Although both operational effectiveness and strategy are necessary for the superior performance of an organisation, they operate in different ways.

The strategy looks at performing different activities from rivals or performing similar activities in different ways. A company can outperform competitors only if it can establish a difference it can preserve.

New strategies will usually entail an organisation performing new and different activities. The aggregate of changes will often require a new operating model, value chain, coordination and control mechanism, people, and skills – in short, a new organisation design.

Aligning structure to strategy.

A company should logically configure its macro-structure to align with its strategy.

The macro-structure is the skeleton of the organisation. It determines how positions are grouped and the approximate size of units. It also encompasses the design of the horizontal and vertical linkages to add flesh to the bones – especially planning and control systems to standardise outputs and coordination mechanisms to enable collaboration.

Few companies systematically approach organisation design issues.

Sound chief executives can provide a clear rationale for their companies' strategies; they are less articulate when justifying their structures.

When it comes to designing an organisation structure, there are four drivers to consider:

• Product-market strategies: how the company intends to lead each product-market field in which it will compete
• Corporate strategy: how the company plans to gain advantage from competing in the product-market areas
• People: the skills and attitudes of the individuals within the organisation
• Constraints: the cultural, environmental, legal, and internal factors that can curb design choices.

Designers who fail to consider these drivers will make it hard for a company to achieve its strategy. This leads to a series of practical tests.

Test one - Market:

Does the design allocate appropriate management attention to the operating priorities and intended sources of advantage in each product-market area?

Test two - Executives:

Even senior-level managers who try to add value are often vague about how they will do so. Does the design reflect the intended sources of added value generated by the executive team and board members?

Test three – People:

Most managers within a company will want to bend the structure to retain their team. However, we would advise you not to, as it could weaken its ability to achieve its strategic goals. Ensure the design identifies the skills, experience and behaviours within each departmental unit that are required to achieve the strategic intent.

Test four – Feasibility:

Managers are aware that constraints can exist but sometimes do not pay enough attention to issues during the design process. Options can be developed and even selected before the corporate lawyer or IT expert points out the problem. Check if the design takes account of the constraints that may make the proposal unworkable.

Designing organisations.

To help managers adopt a less haphazard approach, we have distilled five ‘C’ principles of good organisation design:

Principle one - Concentration

Set unit boundaries to realise the benefits that come from specialisation

Principle two - Cooperation

Define units so that the tasks that need to be closely coordinated are within unit borders where possible. If not feasible, design and implement deliberate cooperation mechanisms to encourage interaction?

Principle three - Competence?

Identify which responsibilities to decentralise and the hierarchical levels to set up

Principle four - Control

Define the process for ensuring that managers effectively discharge decentralised responsibilities – accountability

Principle five - Change?

Ensure the organisation can innovate and evolve in the future.

Transient advantage is the new normal.

This year has broken many organisations, and next year will break many more. One of the first things you should do is examine your strategy – and remember, efficiency programmes by themselves are not a strategy. Are the plans still relevant in this new environment? If not, change them.

Then, review the macro-structure and decide if a high-level reorganisation is required or redesign the organisation within the confines of the existing structure. Then, use a systematic approach to identify the drivers and adopt sound design principles to reorientate, reshape, and resize the enterprise to achieve the strategy.

The next strategic step you take will determine your organisation's future. Ensure that it is in the right direction and has the proper structure to support the journey. Staying still will always result in your organisation being left behind and ultimately becoming obsolete.

What is your company’s strategy and will its organisational structure help or hinder in achieving it?

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