Chicken or the Egg: What comes first, Strategy or Structure?
Strategy: History
In my management classes the prevailing lesson was to first come up with a strategy to penetrate the market and then create a structure to execute it. This view was substantially taken from the Military sciences.
Wikipedia describes Strategy (from Greek stratēgia, “art of the General” ) as a term that came into use in the 6th century C.E. in East Roman terminology, and was translated into Western vernacular languages in the 18th century. From then until the 20th century, the word “strategy” came to denote “a comprehensive way to try to pursue political ends, including the threat or actual use of force, in a military conflict”. It is still used as the art of planning and directing overall military operations and movements in a war or battle.
Today, the use has been adapted in a broader sense as a plan of action or policy designed to achieve a major or overall aim. It is a high level plan to achieve one or more goals under conditions of uncertainty.
In Theory: Structure Follows Strategy
MBA classes subscribe to this military approach, as made popular by Chandler. Chandler based his thesis on case studies of American conglomerates, such as DuPont, General Motors, Sears Roebuck and Standard Oil. These companies dominated their industry from the 1920s onward. These companies managed a growth and diversification radical strategy by adopting the then revolutionary structure; with multi-divisions of semi-independent product or geographic groups plus a headquarters that oversees the corporate goals and coordinates inter-dependencies.
He wrote that the need to “restructure” arose from a strategic shift driven by new technologies and market changes. He defined structure as the design of the organization through which this strategy is administered. The theoretical foundation in business was clearly established as Structure follows Strategy.
In Practice: Strategy Follows Structure
Chandler was prescient and posited that changes in an organization’s strategy led to new administrative problems which, in turn, required a new or refashioned structure for the successful implementation of the new strategy. As the strategy changed and evolved the structure should also change and evolve.
What he did not anticipate perhaps was the trap that locks an organization into the prevailing strategy rather than refashion their structure in spite of new problems caused by change.
No wonder that my experience in Corporate America was filled with admonishments like,“this is not what we do”, “ get back to blocking and tackling”, “don’t rock the boat”. etc.
Compelling strategies were ignored because they did not fit with the prevailing Structure. Changes which could fit within the existing Structure were the only “innovation” that could move ahead.
Hall and Saias confirmed that in practice, Strategy Follows Structure. For example, they point out that once an organization had a multi-divisional structure they were biased towards following their preexisting strategy.
The conglomerates of Chandlers study, are a shadow of their former self. They withered away pushing a strategy rather than change.
Nature Says: It Will Be So!
A cursory application of Bio-mimicry, the study of nature to understand human issues, can explain this very outcome in established organizations.
In nature, early organisms without a backbone, the invertebrates, like jelly fish, snails, ticks, etc. are immensely flexible and can fit into many, many different situations. Even today 98% of all animal species fall in this category.
The early transitional animals had to develop a small backbone. It was small and pliable enough to enable them to shuffle through land. The strategy of finding food on land required the structure of a developing spine.
As the species evolved for more and broader tasks, a hard, needle-like anatomical spine, was needed. It enabled the new organisms to grow big, stand erect and run fast. All advanced animals are dependent on that hard spine.
While a spine is essential to enable the organisms to do what they can do, it also limits what they cannot do!
They become good at many things, like being able to reach higher places, run, etc., that the spine allows them to do. And, they also become limited in many other things because of the rigidity that is now in place. A large animal is no longer flexible enough to squeeze through small openings. Now the structure of the spine limits the strategy of several capabilities that were inherent in earlier species.
Entrepreneurs: Find Niches or Change the Game
Based upon deep experience in the field, you’re embarking on starting your own business. You have many ideas. The ideas may be doing the same, incrementally different or radically different.
Competing headlong with an established institution by going after the whole market or even large segments of the market is a foolhardy strategy for a newcomer. It is a recipe for disaster. You have neither the resources, nor the experience to prevail against their might, and are well advised to forget this option.
Instead, you have two options:
- Serve a market niche: ignored by the established institutions( See Smart-entrepreneurs-to-find-niches-in-the-wake-of-a-market-leader.), or
- Change the game: by providing a radically different way of fulfilling the same need. Bryce Roberts gave one entrepreneurs response as,”Startups don’t compete with airlines by purchasing a bunch of planes, hiring a bunch of pilots and locking up a bunch of terminals at airports. Startups compete with airlines by inventing videoconferencing.”
Back to Basics: Structure Follows Strategy
Either way, if you are going to end run the prevailing industry practice with a emerging new niche, or a new product/service for the same need, your new strategy mandates the design of a new structure to support it.
It is likely to be quite a departure from the established industry practice. Copying a structure, one you have become familiar with from your past, will play into the very hands of the establishment.
You have to be the invertebrate that has the ability to morph into the structure that is needed by that radical strategy. Structure will follow your Strategy.
The industry leader will be frozen in their existing structure and will have limited capacity to come after you. They will continue to deliver the same strategy as before. You now have a chance!
Looking at your industry for clues of the new structure is futile. Look outside to other organizations, who have been able to execute a similar niche strategy as yours, for clues to a possible “radical” structure.
Long March Forward: SFS, SFS
What happens when you have grown up? What follows what?
Henry Mintzberg offered a balanced view.
He argued that the relationship between strategy and structure is reciprocal. “Structure follows Strategy, and Strategy follows Structure… as the left foot follows the right.”
If you are smart and nimble you may be able to march to that tune for a long time. That is the whole arena of Innovation in a rapidly changing environment.
However, for now, just focus on designing a competent Structure that supports your compelling disruptive Strategy.
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Dr. Rajiv Tandon is an Entrepreneur, Educator and Mentor. He facilitates peer groups for CEOs of fast-growing companies in Minnesota. To learn more, sign up to get the email newsletter.
