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What Is the Relationship between Organizational Structure and Strategy?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 28 October 2016
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Organizational structure and strategy are related because organizational strategy helps a company define and build its organizational structure. A company's organizational structure is based on the result of the analysis of organizational strategy. The company will use these results to determine its areas of concentration and how to position itself in order to succeed.

One of the first steps a company takes in its initial stages is assessing its operational environment in order to determine the conditions in which it must operate. This involves checking out the competition, consumer trends, culture and other factors. The company will find out the strengths and weaknesses of its competition, the buying habits of the consumers, and its economic capabilities. If the competition sells their own product for $10 US Dollars (USD), the company would have to work out if the best strategy is to sell its own product above or beyond that price. Selling its own product at a discount is a strategy that might appeal to a certain demographic. On the contrary, selling the same product above the price of the competition is also a strategy that might confer exclusivity and appeal to a certain demographic.

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A company will also find out what kind market exists in its environment by researching the people in that environment. If the majority of the people are highly educated with greater spending power, making a product exclusive might appeal to them. If the majority of customers belong to the lower income bracket, selling a product at a discount will work better. Other organizational strategy might include outsourcing some of the jobs to minimize costs. It may also include locating the manufacturing plant in countries with cheap labor to enable the company to offer its products at a competitive price.

The relationship between organizational structure and strategy becomes clearer when the company’s strategy is in place. With a clear focus of what it wants to achieve, the organization will proceed to align its structure in such a manner to best achieve this. It will allocate responsibilities for optimal results, create branches, and decide whether individual efforts or group participation is the best method for it to achieve its goals. The organizational structure and strategy will also help the company decide if the tone of the company should be strictly formal, semi-formal or informal. All of these decisions can be made after determining the organizational strategy of the company.

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serenesurface
Post 3

@fBoyle-- For the most part, the organizational structure and strategy are planned and established when the organization is just starting off. This is because the structure is based on the strategy and the strategy is the main goal of an organization. So if an organization's main goal is to deliver a certain product or service to as many people as possible, it will set up the structure according to this goal.

If the strategy of the organization changes, then the structure will also have to be changed and you're right that this is very costly. For this reason, the strategy and structure of the organization should be flexible enough to adapt to changes without requiring a major, costly shift.

fBoyle
Post 2

@turkay1-- But how often does an organization need to make changes in their structure and strategy?

I agree that the structure and strategy have to be adjusted for success. But isn't this also a very costly thing for an organization?

I can't imagine an organization being able to make these changes very often.

candyquilt
Post 1

Organizations that don't match their structure and strategy based on the environment and trends in the market make themselves apparent right away. They suffer loses or go out of business!

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