Organisation & Strategic Leadership: Notes | Financial Management & Strategic Management for CA Intermediate PDF Download

 Page 1


 
 
 
LEARNING OUTCOMES 
 
ORGANISATION  
AND STRATEGIC 
LEADERSHIP 
After studying this chapter, you will be able to - 
? Understand the importance of organizational structure in 
strategy implementation. 
? Examine the relationship between strategy and structure. 
? Understand how to establish strategic business units (SBUs). 
? Highlight the role of leadership in the execution of strategy. 
? Learn how to build a supportive corporate culture.
? Explain the concepts of entrepreneurship and 
intrapreneurship. 
A management truism says structure follows strategy. However, this 
truism is often ignored. Too many organizations attempt to carry out a 
new strategy with an old structure.
Dale McConkey
CHAPTER 
7 
Page 2


 
 
 
LEARNING OUTCOMES 
 
ORGANISATION  
AND STRATEGIC 
LEADERSHIP 
After studying this chapter, you will be able to - 
? Understand the importance of organizational structure in 
strategy implementation. 
? Examine the relationship between strategy and structure. 
? Understand how to establish strategic business units (SBUs). 
? Highlight the role of leadership in the execution of strategy. 
? Learn how to build a supportive corporate culture.
? Explain the concepts of entrepreneurship and 
intrapreneurship. 
A management truism says structure follows strategy. However, this 
truism is often ignored. Too many organizations attempt to carry out a 
new strategy with an old structure.
Dale McConkey
CHAPTER 
7 
 
 
STRATEGIC MANAGEMENT 7.2 
 
7.1 INTRODUCTION 
A competitive advantage is created when there is a proper match between 
strategy and structure. Ineffective strategy/structure match may result in company 
rigidity and red tapism, given the complexity and need for rapid changes in 
today’s competitive landscape. Thus, effective strategic leaders seek to develop 
an organizational structure and accompanying controls that are superior to those 
of their competitors. 
Organisation and strategic 
Leadership
Organisation 
Structure
Simple Structure
Functional Structure
Divisional Structure
Multi Divisional 
Structure
Strategic Business 
Unit (SBU) Structure
Matrix Structure
Network Structure
Hourglass Structure
Strategic Leadership
Transformational
Transactional
Strategy Supportive 
Culture
Entrepreneureship 
and Intrapreneurship
 
Page 3


 
 
 
LEARNING OUTCOMES 
 
ORGANISATION  
AND STRATEGIC 
LEADERSHIP 
After studying this chapter, you will be able to - 
? Understand the importance of organizational structure in 
strategy implementation. 
? Examine the relationship between strategy and structure. 
? Understand how to establish strategic business units (SBUs). 
? Highlight the role of leadership in the execution of strategy. 
? Learn how to build a supportive corporate culture.
? Explain the concepts of entrepreneurship and 
intrapreneurship. 
A management truism says structure follows strategy. However, this 
truism is often ignored. Too many organizations attempt to carry out a 
new strategy with an old structure.
Dale McConkey
CHAPTER 
7 
 
 
STRATEGIC MANAGEMENT 7.2 
 
7.1 INTRODUCTION 
A competitive advantage is created when there is a proper match between 
strategy and structure. Ineffective strategy/structure match may result in company 
rigidity and red tapism, given the complexity and need for rapid changes in 
today’s competitive landscape. Thus, effective strategic leaders seek to develop 
an organizational structure and accompanying controls that are superior to those 
of their competitors. 
Organisation and strategic 
Leadership
Organisation 
Structure
Simple Structure
Functional Structure
Divisional Structure
Multi Divisional 
Structure
Strategic Business 
Unit (SBU) Structure
Matrix Structure
Network Structure
Hourglass Structure
Strategic Leadership
Transformational
Transactional
Strategy Supportive 
Culture
Entrepreneureship 
and Intrapreneurship
 
7.3 
 
ORGANISATION AND STRATEGIC LEADERSHIP
 
Selecting the organizational structure and controls that result in effective 
implementation of chosen strategies is a fundamental challenge for managers, 
especially top-level managers. This is because companies must be flexible, 
innovative, and creative in the global economy if they are to exploit their core 
competencies in the pursuit of marketplace opportunities. Companies must also 
maintain a certain degree of stability in their structures so that day-to-day tasks 
can be completed efficiently. 
To act and contribute as a manager and employee in today’s emerging business 
scenario, skills related to strategic, organizational and leadership processes are 
necessary.  
 7.2 ORGANIZATION STRUCTURE 
The ideal organizational structure is a place where ideas filter up as well as down, 
where the merit of ideas carries more weight than their source, and where 
participation and shared objectives are valued more than executive order. 
– Edson Spencer 
Changes in corporate strategy often require changes in the way an organization is 
structured for two major reasons. First, structure largely dictates how operational 
objectives and policies will be established to achieve the strategic objectives. For 
example, objectives and policies established under a geographic organizational 
structure are couched in geographic terms. Objectives and policies are stated 
largely in 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 to achieve 
strategic objectives. 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.  
According to Chandler, changes in strategy lead to changes in organizational 
structure. Structure should be designed or redesigned to facilitate the strategic 
pursuit of a firm and, therefore, structure should follow strategy. Chandler found 
a particular structure sequence to be often repeated as organizations grow and 
change strategy over time. There is no one optimal organizational design or 
structure for a given strategy. What is appropriate for one organization may not 
Page 4


 
 
 
LEARNING OUTCOMES 
 
ORGANISATION  
AND STRATEGIC 
LEADERSHIP 
After studying this chapter, you will be able to - 
? Understand the importance of organizational structure in 
strategy implementation. 
? Examine the relationship between strategy and structure. 
? Understand how to establish strategic business units (SBUs). 
? Highlight the role of leadership in the execution of strategy. 
? Learn how to build a supportive corporate culture.
? Explain the concepts of entrepreneurship and 
intrapreneurship. 
A management truism says structure follows strategy. However, this 
truism is often ignored. Too many organizations attempt to carry out a 
new strategy with an old structure.
Dale McConkey
CHAPTER 
7 
 
 
STRATEGIC MANAGEMENT 7.2 
 
7.1 INTRODUCTION 
A competitive advantage is created when there is a proper match between 
strategy and structure. Ineffective strategy/structure match may result in company 
rigidity and red tapism, given the complexity and need for rapid changes in 
today’s competitive landscape. Thus, effective strategic leaders seek to develop 
an organizational structure and accompanying controls that are superior to those 
of their competitors. 
Organisation and strategic 
Leadership
Organisation 
Structure
Simple Structure
Functional Structure
Divisional Structure
Multi Divisional 
Structure
Strategic Business 
Unit (SBU) Structure
Matrix Structure
Network Structure
Hourglass Structure
Strategic Leadership
Transformational
Transactional
Strategy Supportive 
Culture
Entrepreneureship 
and Intrapreneurship
 
7.3 
 
ORGANISATION AND STRATEGIC LEADERSHIP
 
Selecting the organizational structure and controls that result in effective 
implementation of chosen strategies is a fundamental challenge for managers, 
especially top-level managers. This is because companies must be flexible, 
innovative, and creative in the global economy if they are to exploit their core 
competencies in the pursuit of marketplace opportunities. Companies must also 
maintain a certain degree of stability in their structures so that day-to-day tasks 
can be completed efficiently. 
To act and contribute as a manager and employee in today’s emerging business 
scenario, skills related to strategic, organizational and leadership processes are 
necessary.  
 7.2 ORGANIZATION STRUCTURE 
The ideal organizational structure is a place where ideas filter up as well as down, 
where the merit of ideas carries more weight than their source, and where 
participation and shared objectives are valued more than executive order. 
– Edson Spencer 
Changes in corporate strategy often require changes in the way an organization is 
structured for two major reasons. First, structure largely dictates how operational 
objectives and policies will be established to achieve the strategic objectives. For 
example, objectives and policies established under a geographic organizational 
structure are couched in geographic terms. Objectives and policies are stated 
largely in 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 to achieve 
strategic objectives. 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.  
According to Chandler, changes in strategy lead to changes in organizational 
structure. Structure should be designed or redesigned to facilitate the strategic 
pursuit of a firm and, therefore, structure should follow strategy. Chandler found 
a particular structure sequence to be often repeated as organizations grow and 
change strategy over time. There is no one optimal organizational design or 
structure for a given strategy. What is appropriate for one organization may not 
 
 
STRATEGIC MANAGEMENT 7.4 
be appropriate for a similar 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 structure-by-product form of 
organization. Small firms tend to be functionally structured (centralized). 
Medium-size firms tend to be divisionally structured (decentralized). Large firms 
tend to use an SBU (strategic business unit) or matrix structure. As organizations 
grow, their structures generally change from simple to complex as a result of 
linking together of several basic strategies. 
Figure:  Chandler’s Strategy-Structure Relationship
Every firm is influence by numerous external and internal forces. But no firm could 
change its structure in response to each 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. 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 conflicts, too large a span of control, and too 
many unachieved objectives. Changes in organisational structure 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 
products sell. 
Structure can also influence strategy. If a proposed strategy required massive 
structural changes it would not be an attractive choice. In this way, structure can 
shape the choice of strategy. But a more important concern is determining what 
types of structural changes are needed to implement new strategies and how 
these changes can best be accomplished. We will examine this issue by focusing 
on the following basic types of organizational structure: functional, divisional by 
geographic area, divisional by product, divisional by customer, divisional process, 
strategic business unit (SBU), and matrix. 
Page 5


 
 
 
LEARNING OUTCOMES 
 
ORGANISATION  
AND STRATEGIC 
LEADERSHIP 
After studying this chapter, you will be able to - 
? Understand the importance of organizational structure in 
strategy implementation. 
? Examine the relationship between strategy and structure. 
? Understand how to establish strategic business units (SBUs). 
? Highlight the role of leadership in the execution of strategy. 
? Learn how to build a supportive corporate culture.
? Explain the concepts of entrepreneurship and 
intrapreneurship. 
A management truism says structure follows strategy. However, this 
truism is often ignored. Too many organizations attempt to carry out a 
new strategy with an old structure.
Dale McConkey
CHAPTER 
7 
 
 
STRATEGIC MANAGEMENT 7.2 
 
7.1 INTRODUCTION 
A competitive advantage is created when there is a proper match between 
strategy and structure. Ineffective strategy/structure match may result in company 
rigidity and red tapism, given the complexity and need for rapid changes in 
today’s competitive landscape. Thus, effective strategic leaders seek to develop 
an organizational structure and accompanying controls that are superior to those 
of their competitors. 
Organisation and strategic 
Leadership
Organisation 
Structure
Simple Structure
Functional Structure
Divisional Structure
Multi Divisional 
Structure
Strategic Business 
Unit (SBU) Structure
Matrix Structure
Network Structure
Hourglass Structure
Strategic Leadership
Transformational
Transactional
Strategy Supportive 
Culture
Entrepreneureship 
and Intrapreneurship
 
7.3 
 
ORGANISATION AND STRATEGIC LEADERSHIP
 
Selecting the organizational structure and controls that result in effective 
implementation of chosen strategies is a fundamental challenge for managers, 
especially top-level managers. This is because companies must be flexible, 
innovative, and creative in the global economy if they are to exploit their core 
competencies in the pursuit of marketplace opportunities. Companies must also 
maintain a certain degree of stability in their structures so that day-to-day tasks 
can be completed efficiently. 
To act and contribute as a manager and employee in today’s emerging business 
scenario, skills related to strategic, organizational and leadership processes are 
necessary.  
 7.2 ORGANIZATION STRUCTURE 
The ideal organizational structure is a place where ideas filter up as well as down, 
where the merit of ideas carries more weight than their source, and where 
participation and shared objectives are valued more than executive order. 
– Edson Spencer 
Changes in corporate strategy often require changes in the way an organization is 
structured for two major reasons. First, structure largely dictates how operational 
objectives and policies will be established to achieve the strategic objectives. For 
example, objectives and policies established under a geographic organizational 
structure are couched in geographic terms. Objectives and policies are stated 
largely in 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 to achieve 
strategic objectives. 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.  
According to Chandler, changes in strategy lead to changes in organizational 
structure. Structure should be designed or redesigned to facilitate the strategic 
pursuit of a firm and, therefore, structure should follow strategy. Chandler found 
a particular structure sequence to be often repeated as organizations grow and 
change strategy over time. There is no one optimal organizational design or 
structure for a given strategy. What is appropriate for one organization may not 
 
 
STRATEGIC MANAGEMENT 7.4 
be appropriate for a similar 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 structure-by-product form of 
organization. Small firms tend to be functionally structured (centralized). 
Medium-size firms tend to be divisionally structured (decentralized). Large firms 
tend to use an SBU (strategic business unit) or matrix structure. As organizations 
grow, their structures generally change from simple to complex as a result of 
linking together of several basic strategies. 
Figure:  Chandler’s Strategy-Structure Relationship
Every firm is influence by numerous external and internal forces. But no firm could 
change its structure in response to each 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. 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 conflicts, too large a span of control, and too 
many unachieved objectives. Changes in organisational structure 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 
products sell. 
Structure can also influence strategy. If a proposed strategy required massive 
structural changes it would not be an attractive choice. In this way, structure can 
shape the choice of strategy. But a more important concern is determining what 
types of structural changes are needed to implement new strategies and how 
these changes can best be accomplished. We will examine this issue by focusing 
on the following basic types of organizational structure: functional, divisional by 
geographic area, divisional by product, divisional by customer, divisional process, 
strategic business unit (SBU), and matrix. 
 
 
7.5 
 
ORGANISATION AND STRATEGIC LEADERSHIP 
 
In order to implement and manage strategies that have been formulated, all 
companies need some form of organizational structure. And, as companies 
formulate new strategies, increase in size, or change their level of diversification, 
new organizational structures may be required. 
Organizational structure is the company’s formal configuration of its intended roles, 
procedures, governance mechanisms, authority, and decision-making processes. 
Organizational structure, influenced by factors such as an organization’s age and size, 
acts as a framework which reflects managers’ determination of what a company does and 
how tasks are completed, given the chosen strategy. The most important issue is that the 
company’s structure must be congruent with or fit with the company’s strategy. 
7.2.1 Simple Structure 
Simple organizational structure is most appropriate for companies that follow a 
single-business strategy and offer a line of products in a single geographic 
market. The simple structure also is appropriate for companies implementing 
focused cost leadership or focused differentiation strategies. A simple structure is 
an organizational form in which the owner-manager makes all major decisions 
directly and monitors all activities, while the company’s staff merely serves as an 
executor. 
Little specialization of tasks, few rules, little formalization, unsophisticated 
information systems and direct involvement of owner-manager in all phases of 
day-to-day operations characterise the simple structure. In the simple structure, 
communication is frequent and direct, and new products tend to be introduced to 
the market quickly, which can result in a competitive advantage. Because of these 
characteristics, few of the coordination problems that are common in larger 
organizations exist. 
A simple organizational structure may result in competitive advantages for some 
small companies relative to their larger counterparts. These potential competitive 
advantages include a broad-based openness to innovation, greater structural 
flexibility, and an ability to respond more rapidly to environmental changes. 
However, if they are successful, small companies grow larger. As a result of this 
growth, the company outgrows the simple structure. Generally, there are 
significant increases in the amount of competitively relevant information that 
requires processing. More extensive and complicated information-processing 
requirements place significant pressures on owner-managers (often due to a lack 
of organizational skills or experience or simply due to lack of time).