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Strategy and Structure

This case analysis addresses the interdependence between firm strategy and organizational structure. It covers the attributes of the types of organizational structure and notes major benefits of each type. In order to drive performance so as to gain and sustain competitive advantage, a firm's organizational structure must align with its strategic intent. Be sure to familiarize yourself with the concepts in section 11.2 of the textbook. The concepts exemplified by this case reinforce Learning Objective 11-5.

Read the minicase below and answer the questions that follow.

Minicase

Every organization needs to have structure in order to accomplish goals and strategic objectives. If a firm’s structure does not fit its strategy, then performance can be weakened. The level of formalization, work specialization, and the degree and span of control are all elements of an organizational structure that vary depending on the type of strategy being pursued. There are four primary types of organizational structures, and each structure has strengths and weaknesses. It is a managerial responsibility to ensure that the organization is structured properly since the size and complexity of the firm evolves over time. Whether the pursuit is a specific business-level strategy (such as differentiation) or a corporate-level strategy (such as related diversification), it is the firm that is best able to match its structural design to its strategic goals and corporate culture that will have an advantage.

Here, we look at how two successful firms have matched strategy with structure while keeping the corporate culture intact: W. L. Gore and Zappos. When Bill Gore founded W. L. Gore, it was a small firm operating out of his basement. In the beginning, a production line was set up in Mr. Gore’s backyard. The firm had a simple structure, with Mr. Gore making all of the important strategic decisions and running the day-to-day operations. As it grew larger and the amount of products increased, the firm was restructured a few times, evolving into a functional organization and finally into a multidivisional (M-form) organization. However, during each transition, the firm’s informal culture and open communication channels stayed intact and W. L. Gore was able to retain a flat structure that reinforced its innovation competencies. It is estimated that the company has launched over 1,000 successful products, ranging from Gore-Tex to dental floss to guitar strings.

Zappos, the leader in online shoe retailing, began primarily as an organic and simple organization with a unique culture whose primary mission was to deliver the ultimate in customer service. As the firm grew, the complexities of managing an e-commerce business, including managing cash flow, led to the firm being acquired by Amazon in 2009. However, the management team at Zappos required that the agreement permit the firm to continue operating as completely independent, with its own management structure, products, and strategies. It is now a wholly owned subsidiary. Zappos is currently structured as a separate business unit (SBU) under Amazon’s multidivisional structure. This allows Amazon the ability to organize and control many different product lines in diverse geographic areas while still allowing business units like Zappos the ability to pursue its own business-level strategic pursuits. Known for its "Zapponian" culture, the company has continuously been named one of the best places to work.

Suppose that a small company that makes a standardized product is experiencing an increase in sales even though it has a small geographic footprint. Currently, the founder makes all of the strategic decisions but is beginning to feel overwhelmed. She has decided to pursue a cost-leadership strategy going forward. In order for the firm to achieve its goals, which of the following business-level structures should the firm adopt?

Multiple Choice

an ambidextrous functional structure

a centralized functional structure

a flexible organic structure

a centralized multidivisional structure

a simple structure with the founder's imprint