Strategy and Structure

Fundamentals

In his early work, Chandler suggested that the design or structure of an organization results or follows from its strategy for achieving its objectives, specifically its growth objectives. He defined strategy as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Although he did not formally distinguish between different types of strategy, the examples used in his work suggest that Chandler referred primarily to corporate-level strategies, in contrast to strategic decisions typically taken at the business unit level, such as product design and pricing. With respect to the structure of an organization, he referred to the design of its hierarchy (e.g., lines of authority and communication) and the information flow within this hierarchy. Among other arguments, he suggested that the introduction of the multidivisional organization under the management of a corporate head office constituted an organizational response to facilitate diversification and internationalization strategies.

While not constituting a theory in its own right, the idea of a contingency relationship between strategy and structure has been integrated in a diverging set of theoretical perspectives. However, the exact nature, directionality, and temporal dimension of this relationship, the factors underlying it, and—to a lesser extent—the conditions under which it holds, have been subject to an ongoing debate that was at its most intense during the 1970s and 1980s. Chandler saw the causal link between strategy and structure primarily in the need for organizational efficiency. His view that strategy precedes structure in a temporal sense is rooted in the belief that top management formulates relatively stable, long-term strategic objectives, then aligning the organization to facilitate the most efficient attainment of these objectives—a perspective also found in what Henry Mintzberg called the design school of strategic management. In contrast, organizational ecology does not invoke the realization of managerial intentions or objectives as a driving force but derives the temporal ordering between strategy and structure from an organization’s need for peripheral features of (such as its administrative structure) to adapt to its core features (such as its strategy).

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