Welcome to E3: Impact of Strategy on the Organisation

Hello there! Welcome to this guide on how strategy shapes the very DNA of an organisation. You’ve likely spent time learning how to *choose* a strategy, but this chapter focuses on what happens next. Think of it this way: if a strategy is a "map" for a journey, the organisation is the "vehicle." If you decide to go off-road (a new strategy), you probably need to change your car’s tires and suspension (the organisation’s structure and systems).

In this section, we explore how a company must adapt its structure, culture, and control systems to make sure its shiny new strategy actually works. Don't worry if this seems a bit "wordy" at first—we will break it down into simple, logical steps!

1. The Golden Rule: Structure Follows Strategy

The most important concept to start with is from a famous researcher named Alfred Chandler. He argued that structure follows strategy.

This means that an organisation’s internal design (who reports to whom, how departments are split) must be determined by its strategic goals. If you change your strategy, but keep your old structure, the organisation will likely fail because it isn't "built" to handle the new tasks.

Analogy: Imagine a small local bakery that decides to become a national franchise. If they keep just one manager (the owner) trying to oversee 50 stores, the strategy will fail. They need a new structure (Regional Managers, HR departments, etc.) to support the growth.

Quick Review: The Logic Chain

1. A new Strategy is created.
2. New Administrative Problems arise (too much work, too complex).
3. A new Structure is designed to solve those problems.
4. Economic Performance improves.

2. Types of Organisational Structures

When a strategy changes, the organisation might need to shift between different structural "shapes." Here are the most common ones you need to know for E3:

Functional Structure

Employees are grouped by specialty (Marketing, Finance, Production). This works best for small-to-medium businesses with a single product line or a cost-leadership strategy because it is very efficient.

Divisional Structure

The organisation is split into divisions based on Product, Geography, or Customer Type. This is the "go-to" structure for a diversification strategy. If a company sells both cars and airplanes, those two divisions need to be separate because they are completely different businesses.

Matrix Structure

This is where employees have two bosses (e.g., a Functional Manager and a Project Manager). This is common in complex, global strategies where the company needs to be both efficient (functional) and responsive to specific projects or regions.

Common Mistake to Avoid: Students often think the Matrix structure is the "best." It isn't! It is very difficult to manage because of "dual command" (two bosses), which can lead to conflict. Use it only when the strategy is highly complex.

3. Strategic Business Units (SBUs)

As organisations get bigger, they often group related divisions into Strategic Business Units (SBUs). An SBU is a part of the business that has its own set of competitors and its own distinct strategy.

Why use SBUs?
- They allow Head Office to manage a massive company by looking at "clusters" rather than hundreds of tiny departments.
- They give managers accountability for their own specific market.

Summary Takeaway: Structure isn't just about boxes on a chart; it's about ensuring the right people are in the right place to execute the strategy.

4. The Role of the Corporate Centre (Parenting Styles)

In a large company, what does the "Head Office" actually do? This is called Corporate Parenting. The impact of strategy depends heavily on how the parent interacts with its "children" (the business units). Goold and Campbell identified three main styles:

1. Strategic Planning (The "Hands-on" Parent)

The centre is very involved. They help the units set their strategies and share resources between them.
Best for: Companies with very similar businesses where synergy is key.

2. Financial Control (The "Hands-off" Parent)

The centre doesn't care about the "how"—they only care about the "how much." They set financial targets (like ROI or profit) and let the managers get on with it. If the unit hits the target, everyone is happy. If not, the unit might be sold.
Best for: Conglomerates with many unrelated businesses.

3. Strategic Control (The "Middle Ground")

The centre reviews the strategies developed by the units but doesn't dictate them. They balance both strategic goals and financial targets.
Best for: Most modern multi-divisional companies.

Memory Aid: Think of the "Parenting" styles like real parents!
- Strategic Planning: The parent who helps you do your homework every night.
- Financial Control: The parent who says "I don't care what you do, just bring home an A grade."
- Strategic Control: The parent who checks your progress once a week but lets you study your own way.

5. Strategic Control Systems

Once the strategy is impacting the organisation, how do we know it's working? We use Strategic Control Systems. It’s important to distinguish this from "Operational Control."

Operational vs. Strategic Control

Operational Control is about the "Now." Did we make 500 units today? Was the budget exceeded this month? It is internal and short-term.

Strategic Control is about the "Future." Is our strategy still valid? Have competitors changed the game? It is external and long-term.

Key Elements of a Control System:

1. Setting Standards: What does "success" look like for this strategy? (e.g., 20% market share in 3 years).
2. Measuring Performance: Using tools like the Balanced Scorecard (which looks at more than just money—it looks at customers, processes, and learning).
3. Comparing: Gap analysis—are we where we thought we’d be?
4. Corrective Action: If the strategy isn't working, do we change the strategy, or do we change how we are implementing it?

Did you know? Many strategies fail not because the idea was bad, but because the control system didn't catch problems early enough. A good control system acts like an early-warning radar.

6. Summary and Final Tips

To succeed in this part of the E3 syllabus, always ask yourself: "How does this change the way the company actually runs?"

  • Strategy is the decision (e.g., "We will expand to China").
  • Impact is the consequence (e.g., "We need to create a new Geographical Division, hire local experts, and change our Parenting style to Strategic Control").

Key Takeaway Box:
- Chandler: Structure follows Strategy.
- SBUs: Help manage complexity.
- Parenting: Choosing how much "control" the Head Office has.
- Control Systems: Monitoring long-term success, not just today's cash flow.

Don't worry if these models feel abstract. In the exam, you will usually be given a scenario. Just look for clues: Is the company growing? (Move to Divisional). Are they struggling to coordinate? (Look at the Parenting style). You've got this!