Chapter 8: Structural Dynamics and Control Strategies
Learning Objectives
After this lesson, you should be able to:
1. Understand the importance of structural alignment in an organization;
2. State the importance of organizational control;
3. Explain the relationship between structure and strategy;
4. Identify the different structural types of organizations;
5. Understand the growth and expansion of corporate operations; and
6. Explain the reasons for corporate expansion and its corresponding strategic
actions.
STRUCTURAL ALIGNMENT OF ORGANIZATION
Corporate strategies cannot be implemented in a vacuum. Organizational structure
provides the framework within which strategies are applied and ensures effective
implementation and control.
Top executives have the responsibility to ensure that the organization’s strategies match
the appropriate structure, and to make necessary adjustments when needed. The degree
of alignment between structure and strategy determines the firm’s success in achieving
its market objectives and profitability.
Effective strategic leadership requires selecting the most suitable strategy and matching
it with the right structure. This relationship defines roles, responsibilities, and the control
systems that support strategy implementation.
Organizational structure specifies formal relationships, procedures, control systems, and
authority lines. A well-designed structure must be complex enough to support strategic
activities but simple enough for effective implementation.
The structural elements must align to facilitate the smooth execution of strategies.
Effective structures provide stability for daily operations and flexibility to explore future
opportunities and maintain competitive advantage.
As firms grow and expand, they must modify their structure to fit new strategies and
business environments. Remaining static in structure can hinder progress. Proactive
structural adjustment is essential before performance declines or market conditions
worsen.
THE IMPORTANCE OF ORGANIZATIONAL CONTROL
Organizational controls are vital components of structure. They guide strategy
implementation, set performance standards, and compare actual results with desired
outcomes.
Without effective controls, firms cannot sustain competitive advantage. Two key forms of
control are:
A. Strategic Controls
Strategic controls are subjective measures used to verify that a firm’s strategies are
appropriate for achieving goals. These controls assess whether a company is using the
right methods given its internal capabilities and external opportunities.
Characteristics of Strategic Controls:
1. Help firms understand what they intend to do.
2. Are based on subjective criteria.
3. Examine the suitability (“fit”) of strategies.
4. Require effective communication across units.
5. Verify whether appropriate strategies are being shared and implemented.
B. Financial Controls
Financial controls are objective measures of performance. They help evaluate results
based on data and financial indicators.
Characteristics of Effective Financial Controls:
1. Serve as reliable indicators of performance.
2. Are objective and measurable.
3. Evaluate current performance against previous records.
4. Safeguard corporate assets.
5. Ensure that all transactions are properly authorized.
6. Provide accurate and reliable financial information.
Both strategic and financial controls are necessary to achieve profit objectives.
• Large, diversified firms rely more on financial controls due to complex operations.
• Smaller firms emphasize strategic controls, focusing on subjective measures such
as team performance and innovation.
THE INTERDEPENDENCE OF STRUCTURE AND STRATEGY
There is a reciprocal relationship between strategy and structure.
• Strategy formulation involves planning actions.
• Strategy implementation involves executing these plans within a structure.
Once a structure is established, it influences future strategic choices.
Changes in structure demand corresponding strategic changes, and vice versa.
Top management must ensure that both structure and strategy are aligned, stable, and
flexible to maintain current competitive advantages and prepare for future challenges.
PATTERNS OF RELATIONSHIPS BETWEEN STRATEGY AND STRUCTURE
Firms typically evolve through predictable stages of growth, each requiring structural
adjustments and new strategies:
A. Increase in Sales Volume
Growth in sales leads to new departments for marketing, distribution, and advertising —
requiring new managerial strategies.
B. Geographical Distribution
As firms expand regionally or internationally, they need managers who can develop
localized strategies while maintaining corporate goals.
C. Vertical and Horizontal Integration
Increased business complexity requires higher-level executives and new departments
aligned with expanded operations.
D. Product Diversification
New products or technologies require new structures, staff, and strategies to sustain
competitiveness.
E. Business Diversification
Entering new industries or ventures requires complex structures and diversified strategies
distinct from the parent company.
TYPES OF ORGANIZATIONAL STRUCTURES
1. Simple Structure
• Owner-manager makes all major decisions.
• Employees act as extensions of the owner.
• Few rules and informal relationships exist.
• Suited for small firms with a focus strategy.
a. Line Organization Structure:
PRESIDENT/OWNER
SUPERVISOR SUPERVISOR SUPERVISOR
Advantages:
• Simple, direct control and authority
• Fast decision-making and clear accountability
• Low operational cost
Disadvantages:
• Limited specialization
• Few opportunities for growth and innovation
b. Line and Staff Organization Structure:
PRESIDENT
CONTROLLER
MANAGER MANAGER MANAGER
STAFF
SUPERVISOR
Advantages:
• Allows for research and development
• Encourages communication and specialization
• Delegates authority effectively
Disadvantages:
• Higher cost due to more executives
• Risk of conflicts or overconfidence
2. Functional Structure
Used by expanding firms with multiple products or regions.
It promotes specialization, coordination, and career development.
HEAD CORPORATE OFFICE
PRODUCT PRODUCT PRODUCT PRODUCT
Advantages:
• Effective communication
• Knowledge sharing
• Functional specialization
Disadvantages:
• Coordination challenges
• Risk of poor communication among units
3. Multi-Divisional Structure
Used by diversified corporations, especially those operating globally.
PRESIDENT
LEGAL DEPT. GOVERNMENT AFFAIRS
HUMAN CORPORATE STRATEGIC CORPORATE RESEARCH AND
RESOURCES FINANCE PLANNING MARKETING DEVT
DIVISION DIVISION DIVISION DIVISION DIVISION
Advantages:
• Clear accountability and performance tracking
• Simplified operations
• Empowered managers and executives
Disadvantages:
• Possible over-expansion
• Requires skilled and trustworthy executives
• Risk of resource depletion due to diversification