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How do organizations allocate power and authority? How do organizations assign tasks and functions? How do organizations allocate resources and staff? What is the correlation between organizational structure and strategy? Does the structure determine the strategy or does the strategy determine the structure? Answers to these strategic questions are critical to formulating effective organizational strategy and optimal horizontal and vertical differentiation that enables organizations to create and sustain competitive advantage in the global marketplace.
In this review, we examine some relevant and existing academic literature on effective organizational strategy and optimal organizational differentiation that facilitate and maintain competitive advantage in the global marketplace. As noted in the relevant academic literature, the organization’s strategy is its business-wide plan that sets out how the organization will use its resources, tangible and intangible, to achieve stated goals and objectives, while the organization’s structure is the way in which the units of an organization are integrated. internally. The organizational structure also describes the connections to its external environment: corporate publics and planned results. For an organization to execute its plans efficiently and effectively, the strategy and structure must be internally consistent and seamlessly integrated.
Furthermore, organizational design is a formalized process of integrating people, resources, strategic and operational intelligence, and technology into an organization, while organizational structure addresses the questions: Who does what and who reports to whom? In fact, organizational structure is the formal distribution of power, authority, and roles in an organization designed to achieve goals efficiently and effectively, while organizational behavior is the study of the way people interact within groups. The study of organizational behavior is designed to create more efficient and effective organizations. The central idea of the study of organizational behavior is that a scientific approach can be applied to the management of power, authority, tasks, processes, employees and responsibilities.
In the existing academic literature, differentiation is the series of processes that the organization uses to allocate power, authority, tangible and intangible resources, and employees to achieve its strategic and operational objectives. Differentiation processes determine the relationships between managers and employees. Horizontal differentiation occurs when managers and employees receive their assignments for various tasks and vertical differentiation describes the allocation of power and authority within an organization.
As first postulated in Exodus, Jethro differentiation: Vertical differentiation is the process of assigning power and authority, while horizontal differentiation is the process of assigning tasks and functions within an organization. The horizontal differentiation process begins with the delegation of specialized tasks to employees. This form of differentiation prevents an organization from having a single employee or a few employees assigned to perform multiple tasks. The process also allows the organization’s managers and employees to specialize and stay in tasks related to their field of expertise.
The vertical differentiation process involves establishing a “chain of command” between employees and managers. Vertical differentiation segregates management into strategic, executive, and transactional, while horizontal differentiation segregates employees into functional areas: Operations; Investigation and development; Accounting and Finance; marketing and sales; and human capital management.
Some operational guidelines
In practice, while organizational structure focuses on the entire organization, strategy formulation and implementation involves assigning people to tasks and schedules that will help an organization achieve its stated goals and objectives. A well-designed organizational structure can streamline operations, improve decision-making, facilitate cooperation, collaboration, and employee performance. The formulation and implementation of efficient and effective strategies requires a good fit between the strategy and the structure of the organization.
Differentiation and Integration
In general, organizations use a differentiation mechanism to assign employees to different tasks and functions, while the integration mechanism is used to coordinate different units and employees to ensure that they are all working towards the efficient and effective achievement of company goals and objectives. the organization.
When an organization effectively brings together its different units under a visionary leader or coordinated strategic direction, an organization is said to be well integrated. Integration leads to a unified and cohesive organizational structure. The successful organization selects between a differentiated and integrated organizational structure depending on the structure of the industry (degree of competition, stage of the industry’s life cycle, its competitive position, leadership and resources) tangible and intangible.
There is substantial and growing empirical evidence in the relevant academic literature suggesting that successful organizations tend to be more differentiated and integrated than less successful organizations. As organizations grow, they evolve and differentiate into increasingly functional areas: Operations; Investigation and development; Accounting and Finance; marketing and sales; and human capital management.
Structure and Strategy
The organizational structure improves strategic and operational efficiency by providing clarity to employees at all levels of an organization. The efficient and effective organizational structure encourages collaboration and facilitates the performance of the functional areas of an organization by focusing time and energy on productive tasks. Furthermore, a well-designed organizational structure plays an important role in strategy formulation and implementation. Therefore, the organizational structure is critical to the success of an organization, addressing who, what, when, where, why, and how to achieve desired goals and objectives. In addition, the organizational structure determines how power, authority, resources, roles and responsibilities are planned, coordinated, controlled and allocated, and how information flows between the different levels of organizational management: strategic, executive and transactional.
Finally, successful organizations implement strategic coordination among their various units to take advantage of the synergistic opportunities inherent in any strategy. In fact, to outperform their competitors, successful organizations must design an appropriate structure and formulate an optimal strategy that maximizes their profit-making capacity and, at the same time, minimizes the cost of operations.
In summary, a well-designed organizational structure that is properly aligned with the organizational strategy is required to create and maintain a competitive advantage in the global marketplace. Whether organizational strategy is shaped by industry structure as structuralists postulate, or industry structure is reconstructed by organizational strategy as reconstructionists postulate, the most critical requirement is an effective alignment of strategy and structure. organizational, ceteris paribus.