Organizational structure and strategy are interconnected, as a company’s strategy helps define its structure. A company evaluates its environment to determine its strengths, weaknesses, and market, and uses this information to position itself for success. Once a corporate strategy is in place, the organization aligns its structure to achieve its goals.
Organizational structure and strategy are interrelated because organizational strategy helps a company define and build its organizational structure. The organizational structure of a company is based on the result of the analysis of the organizational strategy. The company will use these findings to determine its areas of focus and how to position itself for success.
One of the first steps a company takes in its early stages is to evaluate its operating environment in order to determine the conditions under which it needs to operate. This involves checking competition, consumer trends, culture, and other factors. The company will discover the strengths and weaknesses of its competition, consumer buying habits and its economic capabilities. If the competition is selling their product for $10 United States Dollars (USD), the company should figure out whether the best strategy is to sell their product above or beyond that price. Selling your product at a discount is a strategy that may appeal to a certain demographic. Conversely, selling the same product above the competitor’s price is also a strategy that could impart exclusivity and appeal to a certain demographic.
A company will also find out what kind of market exists in its environment by researching people in that environment. If most people are highly educated with greater spending power, making a product exclusive might appeal to them. If most of your customers are in the lower income bracket, selling a product at a discount will work better. Other organizational strategies might include outsourcing some work to minimize costs. It may also include locating the manufacturing plant in countries with low labor costs to enable the company to offer its products at a competitive price.
The relationship between organizational structure and strategy becomes clearer when corporate strategy is in place. With a clear focus on what it wants to achieve, the organization will proceed to align its structure in such a way as to best achieve this goal. It will assign accountability for optimal results, establish subsidiaries, and decide whether individual efforts or group participation is the best method for achieving its goals. The organizational structure and strategy will also help the company decide whether the tone of the business should be strictly formal, semi-formal or informal. All of these decisions can be made after determining the company’s organizational strategy.
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