There exists a well-entrenched business principle that you first devise your strategy, and then create the structure to deliver it. It’s wrong.

Structure Always Follows Strategy

I was participating in an advisory board meeting last year for an Australian group that is consolidating its diverse operations. It’s part of a global organisation that has a long successful history. I was sitting in their Melbourne office with the Chair of the Board, the CEO, other executives, and quite a few consultants in a video-linked meeting, with participants in other cities as well. The advisory board is an independent team that act as a ‘sounding board’ to test – against the original intent and for correctness – what is being proposed in the amalgamation process that is occurring.

One of the advisory board members, during the discussion, noted that ‘structure always follows strategy’ and therefore there should be no real consideration of operating structure until the strategy was settled. Many people within the meeting nodded in agreement. I understand exactly where they are coming from, but the approach is flawed and dangerous.

This almost universal paradigm of structure following strategy may be traced back to the 1962 work of Professor Alfred Chandler Jnr, a former Professor of Business History at Harvard University. It is a logical and linear progression in thinking. Firstly, devise your strategy and then once you have your strategy, then you determine what will be needed to deliver on it, and there will be your organisational structure.

However, competition and execution are not so simple.

Delivery and adaptability are key capabilities that every competitive business must own.

And strategy is, more often than not, emergent or even unrealised rather than deliberate. And if it’s not planned and deliberate, how can structure follow strategy?

But Maybe Strategy Is Bound By Structure?

The golden rule should be more like ‘craft your strategy with an eye to the capability of your organisation’. A strategy that cannot be delivered is of little use. Your strategy must position you to win, based on your strengths. However, your real underlying strategy must be to build an organisation that is capable of delivering on any competitive strategy that you develop.

Strategy is really about continually building organisational capability.

The more capable and stronger your organisation becomes, the better it will be at delivery and adaptability, and at creating winning competitive strategies. At this level of action, your focus has shifted to building an organisation that is competitively fit and tactically alive.

Let’s look at some of these principles above and unpack them a bit further:

• Strategy is how you propose to achieve the purpose for which your organisation exists. Achieving the goals that have been set allows you to step down the path to delivering on your vision for the business.
• Strategy is your proposed execution in a competitive environment that will lift your strengths and capabilities to a position of insurmountable strength. The intent is to outcompete everyone else.
• The prize sought is to deliver greater customer value than anyone else, and through that outcome secure your position in the marketplace.
• Profit is the reward for delivering greater customer value than anyone else; it is not the focus of your strategy.
• Strategy is not stagnant or periodical – it changes daily and continually. You may try to break it apart into strategy and tactics but it all flows together.
• You may develop a clear deliberate strategy but the reality is that you won’t know how it will all work until someone is on the ground trying to make it happen. This is where the concepts of emergent or unrealised strategy come from. If you want to learn more about this area then read the classic work, ‘The Honda Effect’.
• You may have developed the cleverest strategy ever conceived or invented a product no one can compete with, but if you do not have the capability to deliver it, then it goes nowhere.

Put all of this together and the outcome is that structure and strategy are interwoven and strategy cannot be developed independently. If I had to choose one or the other, I would choose the capable and adaptable organisation rather than the amazing strategy. The organisation can always devise its strategy, but the strategy cannot deliver itself.

An Approach To Weaving Strategy And Structure

So how would you go about blending strategy and structure together? I would follow a crafting pattern that always loops back to validate itself and proceeds ‘more or less’ as follows:

1. Understand the history of your organisation and, clearly, name, explain and understand any significant events or traits that impact its ability to compete effectively.  You are looking at who your organisation is ‘warts and all’.
2. Commence developing your competitive strategy, what I term your competitive posture or if you prefer, how you are going to compete in your marketplace. This involves:
   • Defining your chosen marketplace, its characteristics and the agents that impact it.
   • Understanding the competitive landscape in which you will be competing. Who’s playing in it, where they are strong and weak, and what the rules of competition are that may well be taken for granted.
   • Clearly recognising your strengths and how they allow you to deliver greater customer value.
   • Intimately understanding the value that customers are seeking.
   • Positioning yourself so that you can deliver more customer value than anyone else, and redefining what value means (that is, changing the rules of competition).
3. Exploring and defining the type of organisation that you will need to deliver on the competitive strategy you are crafting above.
   • Understanding any gap that may exist between your present organisation and what you will need to become, and deciding whether it is realistically possible.
4. Amending your competitive strategy to eliminate the organisational gap, or developing the change and implementation program to grow your organisation.

There are other steps to be taken as you move forward in crafting your strategy and even though you may proceed in a linear fashion in developing it, you are always looping back to validate and amend.

There is a great article with a strange name on the Harvard Business Review called ‘Organigraphs: Drawing How Companies Really Work’, which provides an approach to mapping how your organisation functions to deliver the value your competitive posture promises. When you are exploring and defining the type of organisation you must create, it’s not about the organisational chart and what positions people may hold, it’s about how everything works towards one goal: customer value delivery.

The ceiling that you will always hit in trying to grow your business is organisational capability.

The ability of your business to understand why it exists, what customer needs it is seeking to meet, what value looks like to the customer, how need and value may be changing, and how to deliver more value than anyone else – these are the elements of strategy.

The ability of your business to set the right goals to enable delivery, to come together seamlessly as one, to focus on customer value, and to be adaptable – these are the elements of organisational capability, or what many summarise under the tag of structure.

In today’s competitive marketplace, structure and strategy must be woven together with a focus on bringing your business to a level where it is competitively fit and tactically alive.

 

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Active Knowledge Questions:

1. When crafting your strategy do you walk it forward with a clear image of organisational capability?
2. Are you focused on building organisational capability as a core strategy?

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Act Now:

How undefeatable is your business strategy? Consider Strategy Play – Crafting Undefeatable Business Strategies.

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All the best in the success of your business,

Richard Shrapnel

 

References:

Chandler, A. D. (1962). Strategy and Structure: Chapter in the History of the Industrial Enterprise. Cambridge, MA, MIT Press.

Mintzberg, H., et al. (1996). “The “Honda Effect” Revisited.” California Management Review 38(4): 78-117.

Mintzberg, H. and L. Van der Heyden (1999). “Organigraphs: Drawing How Companies Really Work.” Harvard Business Review (Sept.-Oct.): 87-94.