## Organisational Structures in Strategy Implementation

The right organisational structure is critical for strategy implementation. Structure must follow strategy.

> Chandler's principle: A change in a company's strategy gives rise to the need for a new structure to be made.

### Five Types of Organisational Structures

#### 1. Functional Structure

Organised by business functions (Marketing, Finance, Operations, HR)
Best for single-product or single-business firms
Clear specialisation but poor cross-functional coordination

#### 2. Divisional Structure

Organised by product lines, geographies, or customer segments
Each division operates semi-independently
Suited for multi-product organisations

#### 3. Matrix Structure

Dual reporting relationships: both functional AND project/product managers
Best when: dynamic allocation of resources is needed; multiple projects must be simultaneously mentored, monitored, and maximised
Example: Design firms, consulting companies

#### 4. Hourglass Structure

Constricted middle level — wide at the top (senior management) and wide at the bottom (operations), but narrow in the middle
Reduces middle management layers

#### 5. Network Structure (Virtual Organisation)

Most radical organisational design; also called non-structure
Virtually eliminates in-house business functions and outsources many activities
A corporation using network structure is called a virtual organisation
Example: Freelancer hiring virtual assistants for transcription, website updates, graphics; fashion brand outsourcing design, marketing, and HR to separate firms

### Strategic Business Units (SBUs)

Found in multi-business / multi-product organisations (not sole proprietorships, not non-profits typically)
Each SBU has its own set of competitors
SBUs can be created for units at distant geographical locations
SBUs decentralise strategic planning — they do NOT increase centralised control at enterprise level

### Management Levels

Level	Scope	Example
Corporate Level	Entire organisation	CEO, Head of entire India business
Business Level	A specific SBU	Head of Global Biscuits SBU
Functional Level	A specific function within a unit	Head of Finance/Marketing

> Example: Greg headed the Global Biscuits SBU → business level manager. Promoted to head all of Jonky's India → now a corporate level manager.

Worked example

### Example 1

MCQ (MTP1 May 2022): J&P, a western wear brand, contracted a marketing firm from Singapore, a product design team from Mexico, and a branding company for people operations. What kind of structure is this?

(a) Hourglass Structure (b) Outsourcing (c) Network Structure (d) Tree Branch Structure

Correct Answer: (c) Network Structure

J&P has virtually eliminated in-house business functions and outsourced them to separate specialist firms across geographies. This is the defining feature of a network/virtual organisational structure.

### Example 2

MCQ (RTP Nov 2022): Which is the more radical organisation design, also called a 'non-structure', which virtually eliminates in-house business functions and outsources many of them?

(a) Network Structure (b) SBU (c) Hourglass Structure (d) Divisional Structure

Correct Answer: (a) Network Structure

The network structure is the most radical — it outsources most functions and relies on a web of external relationships rather than internal hierarchy.

### Example 3

MCQ (RTP May 2024): House of Jani needs dynamic allocation of resources, ensuring each project and department is mentored, monitored, and maximised via multiple leaders. Which structure is best suited?

(a) Functional (b) Matrix (c) Hourglass (d) Network

Correct Answer: (b) Matrix Structure

Matrix structure provides dual reporting (functional + project/product leaders), which allows dynamic resource allocation and simultaneous oversight by multiple leaders.

### Example 4

MCQ (Sample MCQs): Change in a company's ________ gives rise to problems necessitating a new ________ to be made.

(a) Structure, Strategy (b) Strategy, Structure (c) Structure, Structure (d) Strategy, Strategy

Correct Answer: (b) Strategy, Structure

Chandler's thesis: strategy is formulated first; the organisation then restructures itself to execute that strategy effectively.

⚠️ Common exam mistakes

Confusing Network Structure with Outsourcing — outsourcing is a practice; network structure is an organisational design built around outsourcing.
Stating that SBUs provide more centralised control — SBUs decentralise strategic planning, which is exactly the opposite.
Confusing Hourglass Structure (constricted middle level) with Matrix Structure — they are entirely different designs.
Placing SBUs in sole proprietorships or small single-business firms — SBUs are a concept for multi-business, multi-product enterprises only.
Mixing up management levels: business level = head of an SBU; corporate level = head of the entire organisation.

Reference:

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Organisational Structures and Strategic Business Units (SBUs)

Worked example

⚠️ Common exam mistakes