What Is the Best Organizational Structure for Strategy Implementation?

In "Strategic Management," authors Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson explain that the best organizational structure depends on the organization and the changing market conditions. Organizations will often change only in response to external stimuli such as stockholders who say that the corporation is not performing effectively. Here are four types of organizations described by Hitt et al that are successfully used by today's large organizations for strategic management.

The strategic center firm manages intricate relationships between network partners. For example, if an automobile manufacturer is divided into four strategic operations in geographically distant locations, the center of the company must coordinate all of the activities to ensure that each network partner is meeting its share of the organizational objectives. The center of the organization relies upon competition among the network partners to obtain optimal performance, which means that each network partner uses its own management strategies to maximize its outputs and profits.

In companies with operations in multiple nations and even multiple continents, the center structure depends on each branch's ability to maximize its response to domestic conditions. According to Hitt et al, "Firms using this strategy are trying to gain the advantages of both local responsiveness and global efficiency." The result is a combinational structure that adds together the benefits of managing multiple geographic divisions in cooperation with the product divisional structure.

A strategic business unit structure for an organization divides the company into units including the main headquarters, the strategic business units (SBUs) and the divisions of each SBU. Each SBU has a common set of products or markets it deals with, but its internal structure does not have much in common with the organization of other SBUs. The central headquarters is responsible for using strategic management processes, such as financial controls, to achieve the desired outputs for each of the SBUs.

The strategic management structure that evolves in many companies is a matrix structure. In this model, the company combines two types of structures—divisions organized according to their function (such as marketing or sales) and divisions organized according to the products they produce or the projects in which they specialize. Hitt et al notes that this type of organization is complex because executives of each division stand to win or lose based on the incentives for representing their own interests versus incentives for collaborating (perhaps at the loss of their own power) with the leaders of other divisions across the diverse company. The profitability of the entire company depends on complex interactions among division managers with conflicting or competing interests, and long-term corporate performance depends on the center's successful and ongoing negotiation of competition.