Organizational structure is a critical element of the contemporary world. Marx avers that organizations “make up much of the social reality that people deal with in their day-to-day lives”. From business enterprises to government institutions, these structures mold and influence the operations of all people across the globe. Thus, understanding the genesis and history of organizations may help to appreciate the account and progression of human civilisation. This paper will discuss the historical and theoretical foundation of organizational structure. It will also evaluate the link between organizational structure and business strategy.
Historical and Theoretical Foundation
For many years, increased control and centralisation characterised the history of organizations. Marx maintains that centralization and control became popular after the industrial revolution. Multinational organizations dominated global economy because they had sufficient resource to finance big commercial projects. Governments were not opposed to this model of organizational structure. Therefore, they introduced social welfare programs and policies that promoted centralisation. In a centralised structure, the responsibilities of decision-making and planning are left to the top tire management. In other words, all power is concentrated at the top level. After the Second World War, a new model of organizational structure started to take root in businesses. Rather than decision-making responsibilities remaining with the top management, organizations started delegating the duties to smaller independent units. This mode of organizational structure was referred to as decentralisation. The model was invaluable to small organizations because it enhanced decision-making. Governments welcomed decentralisation by embracing federalism, which gave powers to local authorities.
Alfred Chandler was the first scholar to come up with a theory of organizational structure. He devised the centralization/decentralization model of organizational structure, after studying numerous American corporations. Chandler realized that organizations were gradually evolving from “single-unit, centrally managed operations to umbrella-type structures where a number of comparative autonomous units shared overheads, in particular the strategic planning function” (Marx). The market forces no longer influenced organizational operations. Instead, business management teams made all the critical decisions and influenced operations. Later, Eric Trist and Fred Emery came up with the socio-technical system theory of organizational structure. The two emphasised on the importance of exploiting people’s capacity to boost organizational performance. Moreover, they argued that harnessing technical abilities of a business is vital in enhancing organizational growth. The socio-technical theory underscores the importance of teamwork and employee empowerment. The theory argues that collaboration between employees from different departments enhances organizational efficiency. On the other hand, employee empowerment boosts decision-making processes. It also enables a company to meet and even surpass consumers’ requirements.
Organizational Structure and Business Strategy
There exists a strong correlation between organizational structure and business strategy. As Marx posits, a business’ organizational structure must align with its strategy to promote growth. Additionally, organizations must empower employees at in all departments to allow efficient completion of tasks that are intended to realize organizational goals. One should acknowledge that organizational structure may serve as an enabler or hindrance to employee performance. Moreover, it can influence the manner in which business strategies are formulated. For instance, most of the strategic decisions for institutions with bureaucratic structures are made by the top leadership. An entrepreneur’s initial strategic objectives may determine the kind of organizational structure that a business assumes. For example, a person who aspires to recruit an experienced workforce and to give employees the freedom to try novel ideas and innovate may opt to use a flat organizational structure.
Organizations are structured in different ways depending on their goals. Marx alleges that organizational structures are built around products, functions, and processes. A past study by Marx, found that “the first structure of most organizations is informal and has an effect on organizational goals as well as the strategies for the goal attainment”. A majority of the studies insists that organizational strategies dictate the structure that a business adopts. Nevertheless, there are scholars who argue that organizational structure influences business strategies. Marx holds that strategies are implemented through a premeditated organizational configuration and any changes in a business’ strategies might have significant impacts on its structure. In fact, some companies are forced to introduce new structures whenever they bring changes into their strategies. Chandler’s theory of organizational structure supports the claim that business strategies influence corporate configuration. A business strategy exists in the subconscious mind of a company’s management team before it adopts a given organizational strategy.
All activities that a business undertakes are geared towards enhancing performance in line with its strategic options. As Marx puts it, strategy determines how organizational structure evolves. Strategists use the core composition of a business to facilitate the implementation of organizational strategies in an efficient way. Marx maintains that organizational structure is designed in a manner that brings together essential resource and processes of a firm. An organization must be configured according to its strategic requirements. The rationale behind this is because of the fact that businesses alter their operations strategy in response to environmental dynamics. Nonetheless, new configurations may result in administrative challenges that might affect organizational performance, thus a need for ensuring that a company has an appropriate strategy. Marx emphasizes the importance of readjusting organizational structure to meet the demands of a business strategy. Failure to change a company’s structure would impede organizational performance.
The principle of endogenous growth argues that the dealings and views of individual players have significant impacts industrial and economic scene. In other words, this line of thought insists that strategy shapes organizational structure. The first duty of a company’s management team is to formulate a suitable organizational strategy that corresponds to its target goals and potential challenges. Marx alleges that formulating an appropriate strategy is not sufficient. Organizational leaders must ensure that their firms support the strategies to realise sustainable growth. Many managers understand the technicalities of ensuring that organizational structure aligns with a company’s strategic goals. It is vital to underline the need to constantly adjust and improve both organizational strategy and structure. Companies ought to make sure that their strategies and structures support each other to guarantee efficiency.
After industrial revolution, most corporations adopted a centralised model of business operation. The top management was responsible for making all the decisions. Later, the need to improve organizational efficiency led to companies looking for ways to decentralise decision-making processes. It led to the rise of a decentralised business structure. Chandler was the first theorist to introduce the centralised/decentralised model of business operations. Later, Eric and Emery introduced the socio-technical system theory which underlined the importance of exploiting both employees’ abilities and business’ technical capacity. Research highlights significant relationships between organizational structures and business strategies. Strategy determines the structure that a business embraces. Organizations require adjusting and improving their strategies and structures to promote efficiency.
Marx, TG, 2016, ‘The impacts of business strategy on organizational structure’, Journal of Management History, vol. 22, no. 3, pp. 249-268.