Strategy and Organizational Structure

Lesson Transcript
Instructor: John McLaughlin
The method of an organizational structure dividing, grouping, and coordinating tasks is composed of different elements. Explore why structures differ, cost minimization, innovation and imitation strategies, and ways organizational structures change. Updated: 09/20/2021

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!

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  • 0:06 Why Do Structures Differ?
  • 1:40 Cost Minimization Strategy
  • 2:35 Innovation Strategy
  • 3:36 Imitation Strategy
  • 4:41 Lesson Summary
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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.

Innovation Strategy

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.

Imitation Strategy

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.

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