[Solution] Organization Design and Strategy
Created at:
Author: Emily Carter
The Interrelationship of Strategy and Design
Both corporate-level and business-level strategies affect organization design. Functional strategies, such as for marketing and finance, can also influence organization design choices.
Corporate-Level Strategy
An organization's choice of corporate-level strategy suggests which type of organization design will be most effective. The following are common pairings of strategy and design, though many others are possible depending on the myriad factors that influence organization design:
- Single-product strategy: Functional departmentalization and mechanistic design
- Related diversification: Arrangement of units to promote coordination among them
- Unrelated diversification: Strong hierarchical reporting system to monitor performance of units
- Portfolio approach: Various choices around degree of centralization, span of management, and degree of coordination depending on how each strategic business unit functions within the corporation
Identify organizational design element each listed strategy tends to be associated with.
| Design Element | Strategy |
|---|---|
| Centralization to achieve tight control | |
| Departmentalization around a distinctive product feature | |
| Departmentalization around the market segment of interest |
View Explanation
A business that uses Porter's cost leadership strategy is making products/services that satisfy consumers' basic requirements at low cost. Centralization becomes important to control the use of resources and keep costs of production low.
A business that adopts Porter's differentiation strategy is making products/services with unique value that customers are willing to pay a premium for. The business may choose to departmentalize in a way that brings resources to bear on the differentiating factor.
When a business chooses Porter's focus strategy, it is trying to become very good at serving a certain segment of the market, such as a certain customer group or a certain geographic area. The business may decide to departmentalize in a way that gives that market segment ample attention and resources.
