An important aspect of strategy implementation for your business is to decide on an organization structure that is suited to your strategy.
The contingency approach suggests that there is a structure which would improve the the efficiency of your business/organization, but that ideal structure will vary in type according to the situation or circumstances of your particular organization.
Your organization’s exposure to new environmental conditions should then lead to a change in structure; you must develop strategies to cope with current/changed environmental conditions and to what extent should your configuration can help or hinder the strategies.
Your organization’s configuration must consist the Structures, Processes, Relationships and Boundaries through which you operate as a business.
This consists of the broad structural design of roles, responsibilities and line of reporting. Failure to address issues of structure can impede strategy development and performance. Even though structure is not the panacea for success, it is an important influence on success or failure of strategy.
Processes connect, drive and support people within and around your organization, and have major influence on success or failure. Processes include formal systems and control and also importantly, the informal ways in which people interact and the behaviors needed do success.
This is about the relationships within and beyond your organization. The way relationships are fostered and maintained will also influence performance. An important aspect of this is how the boundaries between various players are defined and sustained; e.g. responsibility for strategic and operational issues, relationships with partners, e.g. issues of strategic alliances etc.
The essence of you organizing for success is to ensure these issues about your structures, processes, relationships and boundaries are working in harmony and not just being driven alone by the latest thinking about a single strand. It must be emphasized how ever that the relative importance of each strand will vary with circumstances and with time, but all the strands matter.
Co-ordinating tasks in your structure
Implementing your strategy should be in part about ensuring the coordination of your corporate and individual endeavors and of co-ordinating the work of individuals. The organization structure can determine to a large extent the communication and power pattens which will determine your organization and coordination of human resource; especially determining where responsibility and authority of operational and strategic decisions should be vested in your business/organization.
Centralization and Decentralization
This should be the degree to which authority is delegated in your business. The terms are therefore used to describe the level at which decisions are taken in the management hierarchy. Complete centralization means that no authority at all is exercised by subordinates. Complete decentralization would also mean that all authority is exercised by subordinates (i.e. there will be no coordination of subordinates) and it is doubtful whether your organization would approach either of these extremes.
However you should consider that both approaches are employed in the sense that centralization is characterized by a greater degree of central control and decentralization is greater degree of delegated authority.
Each approach has its merits and demerits with being opposite of the other.
Advantages of Centralization
• Senior management can exercise greater control over the activities of the organization and coordinate their subordinates or sub-units more easily.
• With central control, procedures can be standardized throughout your business. Hence that would lead to a machine bureaucracy.
• Senior management can make decisions from the point of view of the organization as a whole, whereas subordinates would make decisions from the point of view of their department or section.
• Centralized control would enable your business to maintain a balance between functions or departments. For example, if your company has only a limited amount of funds to spread over the next few years, centralized management would be able to take a balance view of how the funds should be shared out between production, marketing, R&D, motor vehicles and other non-current asset purchases in different departments etc.
• Senior management ought to be more experienced and skillful in making decisions. In theory at least, centralized decisions by senior people are better in quality than decisions by less experienced subordinates.
• Centralized management will often be cheaper in terms of managerial overheads. When authority is delegated, there is often a duplication of management effort and a corresponding increase in staff numbers at lower level of hierarchy.
• In times of crisis, your business may need strong leadership by a central group of senior managers.
Advantages of Decentralization
Some level of decentralization is necessary because of the limitations to the physical and mental capacity of senior managers. A greater degree of decentralization-over and above the minimum which is essential has the following advantages:
• It will reduce the stress and burden of senior management.
• It will provide subordinates with greater job satisfaction by giving them more say in decision-making which affects their work.
• Subordinates may have a better knowledge of ‘local’ conditions affecting their area of work than senior managers would do.
• Delegation should allow greater flexibility and a quicker response to changing conditions. If problems do not have to be referred up a scalar chain of command to senior managers for a decision, decision-making will be quicker. Since decision-making are quicker, they are also more adaptable and easier to change in the light of unforeseen circumstances which may arise.
• If you allow delegated authority to your subordinates, management at middle and junior levels are ‘groomed’ for eventual senior management positions, because they are given the necessary experience of decision-making. Delegation is therefore vital for management development and succession planning.
• By establishing appropriate sub-units or profit centers, to which authority is delegated, the system of control within your business/organization might actually be improved. Targets for performance by each profit center can be ascertained, actual results monitored against targets and control action taken by appropriate subordinates with the necessary authority; your subordinates would then be accountable and responsible for their results, and areas of efficiency or inefficiency within your organization would be more easily identified and remedied or improved.
However, Mintzberg pointed out some of the flaws in this argument.
As already stated, structure is not the panacea for success, it is an important influence on success or failure of strategy. An inappropriate configuration can impede your organization’s strategies, however the reverse is not true, i.e. a change in configuration will not guarantee success.