The definition of corporate strategy is very much associated with that of competitive advantage. Strategy is typically defined as the direction and scope of a company over the long-term. Notwithstanding, the exogenous environment is changing at such a pace that it can be hardly contended that this definition may still hold true. An additional distinctive characteristic of strategy, or rather, a feature strategy should invariably have is adaptability, that is, the capacity to change and adapt to the ever-changing contextual circumstances in order for organizations to constantly attain and maintain competitive edge. Employers define a direction and determine a scope in that these essentially aim at gaining an as huge advantage as possible over their direct and indirect competitors.
All in all, it can
be contended that corporate strategy might be most aptly defined as the
direction and scope an employer identifies and amends over time, as suggested
by the changing circumstances, in order to achieve and maintain competitive
advantage over its competitors. Attaining and maintaining competitive edge over
time, nonetheless, definitely represents a daunting feat to perform. Yet, each organization
is unique so that in terms of strategy, as in many other managerial aspects,
the one-size does not fit all.
Each firm needs to
develop its own strategy, which even though the world is subject to an
incessant process of change, should enable this to be clear about how it
intends to add value to its resources. Developing strategy and keeping it up to
date represent two essential stages of the mandatory process necessary to constantly
keep connected an organization to the exogenous environment. Despite every organization
develops its own strategy not all the organizations competing in the same
market are successful or equally successful, which may be in general due to either
the adoption of an inappropriate, unsuitable strategy or to its bad execution.
Different layers of
organizational strategy have been actually identified over time. Corporate
level strategy is habitually intended to sustain growth, ensure stability and stimulate
innovation, whereas Business Unit level strategy, according to the Generic
Competitive Strategies Framework developed by Porter (Porter, 1980), can enable
firms to achieve competitive advantage by opting for one of the three different
types of generic strategies suggested by the Author:
- Cost leadership,
- Differentiation,
- Focus.
Cost leadership
strategy, which is essentially intended to contain the business expenditures, is
typical of the low-cost, no-frills organizations and of the companies which do
not aim at diversifying themselves in the market in terms of the quality of
their customer service. Despite the main objective of these organizations is to
reduce expenditures at large, these businesses habitually take into due
consideration the circumstance that their customers attach a particular
significance to the quality of what they receive in exchange for what they pay.
Organizations pursuing a differentiation strategy, by contrast, aim at introducing
in the market products or services which are different from those proposed by their
competitors, that is, which are “distinctive and valued as such by customers”
(Porter, 1985). Employers having recourse to a focus strategy basically intend to
reach a more specifically identified consumer target, either at geographic or at
group target level.
Both overall corporate
strategies and business unit level strategies are clearly developed and
implemented to enable employers to achieve their intended objectives. Having
recourse to a type of structure not adequately supporting the strategy developed
by an employer may clearly risk jeopardizing its successful pursuance: “The
purpose of structure is to encourage people to act in ways that management hopes
will support its objectives” (Boddy, 2008). The adoption of the wrong structure
can hence be tantamount to the implementation of an “inconsistent strategy” or
to “bad execution” and can be in any case considered as a reason for employers failing
to achieve competitive advantage.
Employers can develop
their structure according to two main models, what Burns and Stalker (1961)
called “mechanistic” and “organic” structures. Mechanistic models imply a
vertical hierarchy and communication; decisions and responsibilities are
respectively taken and defined centrally. Yet, the delegation of tasks is
tightly defined and subject to rigorous reporting requirements. The distinctive
characteristics of this model are:
- The central roles
know and can hence control what is happening;
- The business policies
are consistently applied within the organization;
- The organization
board presents a uniform image of the organization, also externally;
- Customers receive
a consistent treatment.
In companies
adopting an organic structure tasks are much more flexible, work is carried out
by cross-functional teams and authority is delegated on the basis of expertise
rather than position. Communication amongst those familiar with the task is
horizontal and managers accept that those at the centre must rely on those
nearest to the action, that is to say those who have the expertise to find the
best solutions. Differently from what occurs in the organizations structured
according to the mechanistic approach, in those adopting an organic structure, just
by reason of the organic division of work, organizational charts are not
usually prepared. In the different units of larger organizations it may indeed be
possible to find a blended application of both the mechanistic and the organic
approaches.
The restructuring
process implemented by the Dutch Group Philips in 2001 represents a successful
case of adjustment of organizational structure in order for this to support the
pursuance of business strategy. In order to curb the heavy losses suffered by
the organization the Group reduced to five the number of active divisions and
broke down internal communications barriers so that the internal expertise
could be shared within the entire organization.
Classical model of dynamic relationship between structure and strategy.
E = Environment, R = Resource (Capabilities), S = Strategy, St = Structure, t1 = time
The external
environment characteristics (Et1) and the resources available to the
organization (Rt1) influence the strategy (St1) an employer
decides to adopt at the time t1. This in turn influences and
determines organizational structure (Stt1). The changes occurring in
the external environment and resources availability call for a new strategy (St2)
and consequently a new structure (Stt2) at the subsequent time t2.
More recently, to
underscore the importance of this link, Worthington and Britton (2009) have
claimed that “structure is not an end in itself, but a means to an end” and
should hence mirror an organization’s needs within its current context in the
light of its future requirements.
The Generic
Competitive Strategies Framework (Porter, 1980) and the concepts of mechanistic
and organic structures (Burns and Stalker, 1961) can help to better identify the
link existing between organizational strategy and structure. The objective of a
firm aiming at pursuing a cost leadership strategy is to reduce the
expenditures at large whilst increasing its operation efficiency and
productivity. The type of structure most suitable to effectively support this
strategy is the mechanistic structure, based on strictly defined tasks in an
efficient functional structure. In this case, a hierarchical structure ensures
that people work according to plans and that a vertical communication channel
keeps the centre informed. Organic structures, by contrast, better support organizations
aiming at enabling a rapid flow and circulation of ideas amongst the people
involved in, for instance, a particular project.
A good example of
how a company can successfully shift from one type of structure to the other
according to its wants is represented by the PowerGen case. This privatized
utility company had originally decided to implement a cost leadership approach,
adopting a strict functional structure and putting in place severe rules and a
performance measurement system. As the organization decided to diversify its
activity in different businesses, this supported its decision with an organic
structure organized in several autonomous product divisions able to quickly respond
to the evolving and changing customers’ demand. As a general rule, companies
whose business units have a relatively high decision-making authority are more
successful than those in which this is centralised. A similar success was
attained by GlaxoSmithKline in 2001, when the company’s R&D activities were
split into six autonomous, but tightly focused units.
Employers,
especially when facing increasing pressure from the exogenous context, may try to
achieve competitive edge simultaneously pursuing a cost leadership and differentiation
strategy. The pursuance of such an “integrated strategy”, as termed by Kim et
al. (2004), notwithstanding, is not completely immune from problems. Porter
himself (1985) had indeed originally, and for nearly a decade, supported the
idea that companies have to make a precise choice between cost leadership and
differentiation, but changed his mind after a series of critics were made to his
position, later in 2008.
Some Authors have
supported the idea that an organization’s structure depends, that is, is contingent
upon the external context. This theory is essentially underpinned by the same tenets
underpinning the emergent strategy theory; Donaldson (1996) avers that organizations
operate in an environment which “shapes their strategy, technology, size and
innovation rate.” These factors somewhat of naturally determine the most
effective organizational structure and enable businesses to operate effectively
in their respective markets.
One of the most prominent opponents of the contingency theory is John Child, who stresses the significance of the “political process” in addition to the technical and the rational ones for shaping organizational structure. Managers and their choices in term of organizational structure assume indeed a greater importance in reference to this aspect. The opponents of the contingency theory claim in fact that managers are neither “puppets” nor “automatons”, they do actually have the choice, and it must also be added the duty, to exert their influence over their organizations’ structure.
A good example of
how differently organizations can respond to the changes occurring in the
exogenous context is represented by the diverse retailers’ response to the Internet
phenomenon, which made it possible for these to develop websites by means of
which customers can shop online and receive their orders directly at their homes.
Sainsbury’s, for instance, created a new bespoke division with a separate
management, warehouse and distribution system. Tesco, by contrast, decided to integrate
its new Internet shopping business into the existing stores; employees collect
the items ordered online from the shelves of conventional stores and deliver
them to the customers. Some other retailers, such as Morrisons and Sommerfield,
simply decided not to sell their products online.
In this case,
technology was available to all of these organizations at the same time, but each
employer had the latitude to decide whether to have recourse to it and eventually
how. Some employers considered this as an opportunity and decided to take
advantage of it, but practically having recourse to different types of structure.
Despite it is definitely true that technology and more broadly external factors
have or may potentially have an impact on an organization’s structure, it is invariably
ultimately up to each organization’s management taking the final decisions
about the type of restructuring which needs eventually to be implemented.
Some Authors argue that
an organization may find it easier to develop its strategy according to its structure.
This approach, nonetheless, would entail that organizations would be sorely static
and could not respond, let alone promptly, to the pressure coming from the
exogenous environment. Under such circumstance, an organization would not be
able to properly take advantage of the opportunities eventually arising and to timely
counter the threats eventually posed by the external environment. Yet, organizations
could hardly be able to achieve an acceptable level of performance, never mind to
properly and adequately compete in the market.
Structure by
extension invariably follows and supports strategy.
