One of the critical requirements for effective and efficient strategy implementation is a good design of organisational structure which provides means of exercising appropriate controls as well as responding to challenges of rapid change, knowledge management and globalization. Structural design can deeply influence the sources of an organisation’s advantage, particularly with regard to knowledge management and failure to adjust structures appropriately can fatally undermine strategy implementation.
Required:
Explain FIVE (5) tests you will perform in assessing appropriateness of design of an organsational structure. (10 marks)
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The Market-advantage Test: this test of fit with market strategy is fundamental, following Alfred Chandler’s classic principle that “structure follows strategy”. For example, if coordination between two steps in a production process is important to market advantage, then they should probably be placed in the same structural unit.
The Parenting Advantage Test: the structural design should fit the “parenting” role of the corporate centre). For example, if the corporate centre aims to add value as a synergy manager, then it should design a structure that places important integrative specialisms, such as marketing or research, at the centre.
The People Test: the structural design must fit the people available. It is dangerous to switch completely from a functional structure to a multidivisional structure if, as is likely, the organisation lacks managers with competence in running decentralized business units.
The Feasibility Test: this is a catch-all category, indicating that the structure must fit legal, stakeholder, trade union or similar constraints. For example, after scandals involving biased research, investment banks are now required by financial regulators to separate their research and analysis departments from their deal-making departments.
The Specialized Cultures Test: This test reflects the value of bringing together specialists so that they can develop their expertise in close collaboration with each other. A structure fails if it breaks up important specialist cultures.
The Difficult Links Test: this tests asks whether a proposed structure will set up links between parts of the organisations that are important but bound to be strained. For example extreme decentralization to profit-accountable business units is likely to strain relationships with a central research and development department. Unless compensating mechanisms are put in place, this kind of structure is likely to fail.
The Redundant Hierarchy Test: any structural design should be checked in case it has too many layers of management, causing undue blockages and expense. Delayering in response to redundant hierarchies has been an important structural trend in recent years.
The Accountability Test: this test stresses the importance of clear lines of accountability, ensuring the control and commitment of managers throughout the structure. Because of their accused of lacking dual lines of reporting, matrix structures are often accused of lacking clear accountability.
The Flexibility Test: In a fast-moving world, an important test is the extent to which a design will allow for change in the future. For instance, divisional domains should be specified broadly enough to allow divisional managers to follow new opportunities as they emerge. As Kathleen Eisenhardt puts it, structures should also have enough ‘modularity’ (i.e standardization) to allow easy “patching’ of one part of the organisation on to another part of the organisation., as market needs change.