The relationship between organizational strategy and organizational structure is critically interdependent, but the general consensus is that structure follows strategy.
Strategy is the organization’s long-term plan for achieving its mission and goals (the destination), and structure is the formal arrangement of roles, responsibilities, reporting lines, and processes designed to effectively execute that strategy (the map).
A misalignment between the two can severely hinder performance, leading to inefficiency, poor resource allocation, and a failure to achieve strategic objectives.
Strategy Influences Structure
The organization’s strategy is the primary driver in determining the most appropriate structure. The structure must be designed to support the specific demands of the strategy.
| Strategic Focus | Structure Suitability | Structural Characteristics |
| Cost Leadership/Minimization (Efficiency) | Mechanistic (e.g., Functional Structure) | High specialization, high formalization, tight control, centralized decision-making, and clear chain of command. Best for stable environments and routine tasks. |
| Differentiation/Innovation | Organic (e.g., Flat/Team-Based Structure) | Low formalization, low specialization, loose hierarchy, decentralized decision-making, wide span of control, and fluid communication. Best for dynamic environments and fostering creativity. |
| Diversification/Complex Strategies | Divisional (e.g., product, geographic, or customer divisions) | Independent units, each with its own functional departments, decentralized to allow faster, tailored decision-making for specific markets or products. |
| Cross-Functional/Complex Projects | Matrix Structure | A hybrid combining functional and divisional structures, using dual reporting lines to facilitate coordination and resource sharing across specialized functional departments and specific projects/products. |
| Imitation (Blending efficiency and innovation) | Mixed (Part mechanistic for production, part organic for development) | Utilizes both tight control for mass production and flexible teams for investigating new ideas. |
Key Structural Components
Organizational structure goes beyond a simple organizational chart; it encompasses key components that must be aligned with the strategy:
- Centralization/Decentralization: Where decision-making authority resides. A cost-focus strategy often requires a centralized structure for tight control, while an innovation strategy benefits from a decentralized structure to enable quick, informed decisions by lower-level employees.
- Formalization: The degree to which jobs are standardized and guided by rules and procedures. High formalization suits efficiency (mechanistic), and low formalization suits innovation (organic).
- Work Specialization/Departmentalization: How tasks are divided and grouped (e.g., by function, product, geography). The choice impacts coordination and resource focus.
- Span of Control: The number of subordinates a manager can effectively direct. A narrow span creates tall hierarchies and tight control, while a wide span creates a flatter structure, promoting employee autonomy.
In essence, the strategy dictates the what and why (the goals), and the structure provides the how (the framework for action) to ensure all efforts and resources are integrated and focused on achieving those goals.