Why Do Structures Differ?
The structure of an organization can be mechanistic and have a high degree of formalization and extensive departmentalization and provide little opportunity for decision making by low-level members of the organization. Or the structure of an organization can be organic, with a low degree of formalization and departmentalization and provide ample opportunity for decision making by all members of the organization.
What determines whether the structure of an organization will be more like the rule-oriented mechanistic model or the boundaryless organic model? It all depends on what the organization is trying to accomplish. The goals of the organization are determined by upper management, who then decides the best way to achieve these goals. This is known as organizational strategy, which is the plan a company uses to achieve their objectives. Once a strategy is determined, the founders of an organization select the structure which will best help them meet their long-term goals. So it's strategy first, then structure.
What type of strategy is best suited for a mechanistic structure, and what type of strategy is best suited for an organic structure? There are three different dimensions to the strategy of an organization: cost minimization, innovation, and imitation, and there is a structural design that works best with each of them. Shall we surge ahead and see how specific strategies suit certain structures? We shall!
Cost Minimization Strategy
Peter J. Pinchpenny is the founder and manager of Pinchpenny Industries, a world-renowned manufacturer of footie pajamas. Pinchpenny Industries uses a cost minimization strategy, which encourages tightly controlled costs, no unnecessary innovation or marketing expenses, and strong price cutting, while selling a basic product through established channels.
In order to achieve the goals of his organization, Pinchpenny Industries uses a mechanistic structure, which has high formalization and allows for little decision making among the members of his organization. Pinchpenny Industries operates in an environment with little change, and the goal of this organization is to make their pajamas as inexpensively and consistently as possible. Utilizing a highly formal mechanistic structure helps support the cost minimization strategy of this organization.
Paul T. Pioneer is the founder and manager of Pioneer Discoveries, LLC, a company that strives to bring new and innovative products to the marketplace. Pioneer Discoveries uses an innovation strategy, which emphasizes the introduction of new products and services. Pioneer Discoveries has introduced many amazing new products, including the self-making bed, the glow-in-the-dark bicycle, and their newest invention: the pizza scissors.
In order to achieve the goals of his organization, Pioneer Discoveries uses an organic structure, which has a low degree of formalization and departmentalization and encourages input and decision making by all members of the organization. Pioneer Discoveries operates in a dynamic environment, which is constantly changing, so they need all members of their organization to contribute to new product ideas in order to be successful. Utilizing a boundaryless organic structure helps support the innovation strategy of this organization.
Paul B. Pirate is the founder and manager of Pirate Inc., a company that copies and mass-produces innovative products that have already been proven successful by companies that follow an innovation strategy. Pirate Inc. uses an imitation strategy, which uses both the organic and mechanistic structures to achieve its goals. Pirate Inc. needs the flexibility of the organic structure to investigate new product offerings that they can copy and mass-produce and the tight controls of the mechanistic structure to inexpensively mass-produce these new products once they have been selected. Utilizing a combination of the organic and mechanistic structures helps support the imitation strategy of this organization.
Changing Strategies and Structure
Betty Basket is the founder of a company called Better Baskets. Like Pirate Inc., she uses an imitation strategy and an organic and mechanistic structure. But the basket market is changing, and instead of making copies and mass producing products that have already been proven successful, she would like to adopt an innovation strategy. Betty knows that altering the organizational structure to match her new strategy will help her company achieve its goals, so she outlines a plan for organizational change.
An organic structure is the best match for an innovation strategy. Since Betty already uses a combination of an organic and mechanistic structure, she decides that the best plan is to eliminate some of the mechanistic characteristics of her organization. Betty makes the following changes to make structure more organic and less mechanistic:
- Span of control: The span of control is widened so that there are fewer levels of reporting in the organization. Levels of management (particularly middle management) are reduced to create a flatter organizational structure, which encourages innovation.
- Decentralization: Instead of decisions being made at the top and communicated down through the layers, lower level managers and other employees are encouraged to make strategic decisions for their group.
- Departmentalization: Departmentalization is loosened to increase interaction between different teams. This gives departments more freedom to interact and collaborate.
- Boundary reduction: Every member of the organization is asked for input and encouraged to contribute to product ideas to support the innovation strategy of the organization.
Let's review. Organizational strategy is the plan a company uses to achieve their objectives. The strategy an organization uses to achieve its goals has a large impact on which type of structure will work best for that organization. Organizations may operate under a mechanistic structure, an organic structure, or a combination of both structures. There are three different dimensions to the strategy of every organization. These are:
- A cost minimization strategy, which encourages tightly controlled costs, no unnecessary innovation or marketing expenses, and strong price cutting while selling a basic product through established channels: This strategy is best served by the highly formalized mechanistic structure.
- An innovation strategy, which emphasizes the introduction of new products and services: This strategy is best served by an organic structure, which allows input from all members of the organization.
- An imitation strategy, which uses both the organic and mechanistic structures to achieve its goals: The flexibility of the organic structure is needed to investigate new product ideas, and the tight controls of the mechanistic structure are needed to mass-produce the products once they have been selected.
Every organization has a purpose. Once an organization has determined the goals that it wants to achieve, it then decides the most effective strategy for reaching these goals. Only after the strategy is in place does the organization choose the structure that will best support their strategy.
After watching this lesson, you should be able to:
- Differentiate between mechanistic and organic organizational structures
- Define organizational strategy
- List and describe the three elements of organizational strategy
- Examine which organizational structure fits each element
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