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CHAPTER 7 • IMPLEMENTING STRATEGIES: MANAGEMENT AND OPERATIONS ISSUES 221

terms of products in an organization whose structure is based on product groups. The
structural format for developing objectives and policies can significantly impact all other
strategy-implementation activities.
The second major reason why changes in strategy often require changes in structure is
that structure dictates how resources will be allocated. If an organization’s structure is
based on customer groups, then resources will be allocated in that manner. Similarly, if an
organization’s structure is set up along functional business lines, then resources are
allocated by functional areas. Unless new or revised strategies place emphasis in the
same areas as old strategies, structural reorientation commonly becomes a part of strategy
implementation.
Changes in strategy lead to changes in organizational structure. Structure should be
designed to facilitate the strategic pursuit of a firm and, therefore, follow strategy. Without
a strategy or reasons for being (mission), companies find it difficult to design an effective
structure. Chandler found a particular structure sequence to be repeated often as organiza-
tions grow and change strategy over time; this sequence is depicted in Figure 7-3.
There is no one optimal organizational design or structure for a given strategy or type
of organization. What is appropriate for one organization may not be appropriate for a sim-
ilar firm, although successful firms in a given industry do tend to organize themselves in a
similar way. For example, consumer goods companies tend to emulate the divisional struc-
ture-by-product form of organization. Small firms tend to be functionally structured (cen-
tralized). Medium-sized firms tend to be divisionally structured (decentralized). Large
firms tend to use a strategic business unit (SBU) or matrix structure. As organizations
grow, their structures generally change from simple to complex as a result of concatena-
tion, or the linking together of several basic strategies.
Numerous external and internal forces affect an organization; no firm could change its
structure in response to every one of these forces, because to do so would lead to chaos.
However, when a firm changes its strategy, the existing organizational structure may
become ineffective. As indicated in Table 7-6, symptoms of an ineffective organizational
structure include too many levels of management, too many meetings attended by too
many people, too much attention being directed toward solving interdepartmental con-
flicts, too large a span of control, and too many unachieved objectives. Changes in struc-
ture can facilitate strategy-implementation efforts, but changes in structure should not be
expected to make a bad strategy good, to make bad managers good, or to make bad prod-
ucts sell.
Structure undeniably can and does influence strategy. Strategies formulated must be
workable, so if a certain new strategy required massive structural changes it would not be an
attractive choice. In this way, structure can shape the choice of strategies. But a more impor-
tant concern is determining what types of structural changes are needed to implement new

FIGURE 7-3

Chandler’s Strategy-Structure Relationship

New strategy New administrative Organizational
is formulated. problems emerge. performance declines.

Organizational A new organizational
performance improves. structure is established.

Source: Adapted from Alfred Chandler, Strategy and Structure (Cambridge, MA: MIT Press, 1962).