It is essential to have a well-structured company because it provides the framework for delivering value to a target market. The value chain of your company is the series of high-level operations that comprises the core of the value-creating activity that your company engages in. It is the process by which a competitive strategy is translated into action.
Therefore, the decision-making process for structure should be organized primarily according to the value chain. If an organization is constructed according to a different central principle, then the organization is meant to do something different from what it was originally intended to achieve.
Develop a robust link between the concepts of competitive strategy, value chain, and structure in your organization. The significance of having well-designed structures in place for organizational purposes is made abundantly evident when viewed in light of this connection.
One advantage of having this understanding is that it ensures that the fundamental activities of your company will always serve as the basis for the observations, discussions, and choices that are connected to the manner in which you organize and direct people.
Why do Organizations Need to Have a Clear Strategy for Competing in the Market?
A strategy to produce greater economic performance can be achieved via the use of an effective organizational structure. It is a collection of decisions that outline the activities that an organization will and will not engage in.
Defining a way to produce one-of-a-kind value for a particular market is an essential part of developing a strategy. Strategy requires you to figure out how you can differentiate yourself from competitors in ways that consumers will value.
There are three different types of generic strategies that have the potential to generate positive economic returns. These strategies are identified via the lens of strategy as a competitive position in a market. Students who have studied under Michael Porter will be familiar with these postures.
A unique value proposition needs to be translated into a range of actions that are distinct from those carried out by the company’s rivals. The establishment of a customized value chain is the fundamental aspect of strategic planning. This involves selecting alternative activities to carry out in comparison to those carried out by your market competition or carrying out the same activities in a different manner.
In that case, you are in the same position as your rivals when it comes to the competition. If this is the case, people will say that you are competing to be the greatest, but according to Porter’s definition of strategy, this indicates that you do not have a strategy.
Work Drives the Development of Organizational Structure.
The formal manner in which work and people are grouped into units is defined by an organization’s organizational structure, which is another reason why organizational structure is so important in the business world.
It is consistent with the value chain. Structure helps shape the benefits that are available, including the chance for leadership development, cost reduction, skill specialization, focused attention, control and coordination, and cost reduction.
Work and work within boundaries are the fundamental concepts that serve as the foundation for the judgments that are made regarding the structure. The topic of work was introduced when we began to talk about the value stream in terms of its role as the central expression of competitive strategy. The work itself constitutes the value stream.
It might come as a surprise to learn that the process of creating value from beginning to end is not something that is understood clearly and explicitly by a large number of enterprises.
The concept of unit operations is able to come into focus thanks to the level of granularity at which the activity is performed. The structure of organizations is designed to facilitate the delivery of these unit operations. The term for this kind of job is “working in bounds.”
Only after work that was done in borders was re-integrated using integrating mechanisms, which we term glue, was a structural design considered to be complete. It is impossible to ignore the fact that some people will be brought together while others will be separated due to the departmentalization process.
In order to facilitate the movement of work through the white space that is produced by the structure itself, glue mechanisms are required. It is essential to have the understanding that any set of decisions that partitions work will inevitably result in gaps, which can only be closed through the process of integration.
What Characteristics Make for an Effective Organizational Structure?
Lateral capacity is a method of further integrating an organization throughout its structure. This method develops as a result of departmentalization, which divides work into work in boundaries. An organization can more successfully adapt to difficulties that are not cleanly addressed by the formal structure if it deliberately develops its lateral competence and does so over time.
This skill enables an organization to make more decisions more frequently based on perspectives, talents, experiences, and information pulled from across the vertical organization structure. As a result, an organization is able to do more. The response to those who assert that “structure inhibits flexibility” is presented here.
There is a tiering system for the various mechanisms of lateral integration. The informal organization is at the lowest possible level, also known as the most fundamental level. This is the most straightforward and cost-effective method for developing and managing an interconnection mechanism.
The matrix organization is located at the other end of the continuum. Dual reporting linkages and an even distribution of power are two of the fundamental characteristics of the matrix. It is a complex and expensive form of lateral capability that calls for substantial managerial and leadership maturity on the part of members of the company.
Working as far to the left on this continuum as you can is recommended as sound economic and managerial practice.
Every Organization, Whether It Was Designed To Or Not, Has Structure.
The relationship that organizational structure has with both strategy and the value chain is the primary factor in determining the significance of organizational structure. In order to complete the tasks that make up the value chain, the structure is a statement of the labor that must be performed within the bounds.
Because of this divide, it is also essential to discuss the idea of glue, which is required to reintegrate individual unit processes into a single value chain. In addition to this, it is essential to have the awareness that no structure is capable of satisfying all of the operational requirements for flexibility and speed.
If you are interested in the structure of your company, the first step is to have a talk with your leadership team about your strategy and your value stream. If you are not interested in the structure of your business, skip this step.
The advantage of doing this first step is that it allows you to examine the bedrock, or foundation, upon which an efficient and logical organizational system is formed.
The functional, multi-divisional, flat, and matrix organizational structures are the four different types of organizational structures. Circular structures, structures based on teams, and network structures are among more.
Because of the rise of the Internet, businesses have become more horizontal and flat, which has the effect of narrowing the gap between employees and management. An illustration of this would be the early days of Google, when the company was structured as a flat organization with functional teams organized around projects. The culture of startups has led to the development of flatter organizational models. Nevertheless, as a few of these businesses have grown to a significantly larger size, they have evolved into organizations that are more centralized and hierarchical.