STRATEGY OR STRUCTURE? Which one comes first?

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By CPA Emmanuel Adoli

This has been an ongoing debate for a long time, much like the case of the chicken and the egg. The chicken and the egg dilemma is a causality dilemma brought about by the fact that all chicken hatch from eggs and all chicken eggs are laid by chickens. In line with this dilemma, many strategists, managers and scholars have differed on this subject. Some view that strategy influences structure while others view that structure precedes strategy. Another school of thought is that structure and strategy follow each other dynamically.

Let us begin by definition. Strategy refers to the method employed to enable achievement of an objective. An organization can have short term, medium-term and long term strategies. The short term strategies should support the medium term strategies, which should in turn support the long term strategy.

Structure refers to how elements within the organization are arranged so as to ensure the organization works as one system. Structure involves the hierarchy, roles and responsibilities assigned to different members of the organization. Structure exists so as to avoid duplication of roles and wastage of resources.

Strategy and structure are used together so as to achieve organization goals. Strategy helps the organization to develop a structure that supports execution of the strategy. Once the strategy is formulated, the organization gets a clear sense of direction. The elements within the organization are then aligned so as to ensure the objective is achieved. Responsibilities are allocated, branches opened, working teams/ groups are formulated and targets are set. Some strategies lead to massive recruitment of staff depending on the set objectives.

It takes the right structure for the organization strategy to succeed. Before beginning to direct people on what to do, management should first examine the structure in place (how things have been working). Even though tasks may be carried out individually, they need to be linked in a way that supports the organization strategy. The structure of the organization enables the strategy to be communicated effectively. Different departments break down the strategy so that every member of the organization is given a role to play.

An organization may have a strategy of setting up an online shop for making sales online. The organization will have to set up an IT department if there was none, or expand the structure to accommodate website experts. A bank might be interested in penetrating a particular market. The bank will set up a branch in that area and employ staff to handle new and prospective clients. The structure will change to suit the new strategy e.g. establishing internal audit department to monitor the branch activities. A company might want to launch a new product. This will call for a new department with its own structure so as to manage the product.

For a long time strategy and structure had been treated separately. It was widely thought that structure is just important for improving efficiency, reducing cost, and encouraging teamwork, terminate or redeploy members of staff. However structure has to be considered when developing strategy because employing a new strategy and retaining the old structure may cause the organization to slowly revert back to the old strategy. While most strategists, managers, consultants and scholars argue that the structure follows strategy, there are instances where structure influences strategy formulation.

In case of merger or acquisition, the anticipated change in structure will affect the organization strategies of the two organizations. In this case strategy will follow structure. Both organizations will work together to formulate new strategies including definition of objectives. Barclays Bank of Kenya (BBK) was recently acquired by ABSA group from South Africa. This definitely affects the strategy of BBK as it will have to contribute to the long term strategy of ABSA. ABSA on the other hand, has to develop strategies to penetrate the Kenyan market since it is a new entrant.

When a new product is launched, it is usually an entrepreneurial idea being tried by the organization. Depending on how the product performs, the product could influence change of strategy for the firm. A good example is the M-Pesa product by Safaricom. This is a mobile money service that was originally an idea to provide microfinance loans using mobile phones. Upon trial in the market, something else was noted, that people were borrowing so as to send money to their friends and relatives in the rural areas. Since people in rural areas did not have access to financial services, M-Pesa provided an instant solution to hundreds of Kenyans wishing to transmit money to their loved ones in the rural areas. Immediately Safaricom recruited a large number of agents spread across different towns and streets. The aim was that a customer could visit an agent with cash and the agent converts the cash into float by transferring money to the customer’s phone. The customer then could be able to send money to another person at low transaction costs.

Changes in market and trends may force the organization’s structure to change. As this happens the organization may be forced to change its strategy so as to survive. An organization with a rigid structure may find it difficult to achieve its objectives and will eventually be forced to leave the market, however sound its strategy is. A good example is the mobile phone manufacturer Nokia. The world moved past Nokia and it had to close and sell the mobile phone business to Microsoft. This forced Nokia to remove mobile phones’ business from its strategy. Currently Nokia concentrates on the Telecom infrastructure business.

Change in management- Structural changes in management can have an impact on the strategy of an entity. The appointment of a new CEO may lead to the CEO enforcing strategic change in the organization. In a county for example, when a new government is elected, the new government may come with a new manifesto and this means strategic change for the country. A new cabinet secretary (previously ministers) might come up with new strategies that had not been employed before.

When executives develop corporate strategy, they analyze the environment in which they operate. Such analysis includes analysis of strengths, weaknesses, opportunities and threats (SWOT analysis). This means that an organization’s strategy is determined by its environment. The environment is made of basic structural factors such as the number of suppliers and buyers and barriers to entry. The structure of the industry also has a huge bearing on the organization’s strategy since the organization may be forced to operate within set confines. For example, a bank cannot strategize to carry out transportation business since it is not licensed to carry out such activities.

REFERENCES is_the_relationship_between_structure_ and_strategy technology-blog/m-pesa-created.html#



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