Question

1) What is the importance of structure with respect to strategy.

2) Explain why high levels of 1) centralization, 2) specialization, and 3) formalization make more sense for the low cost strategy than the differentiation strategy.

Answer 1

1. The structure of the organisation have a positive impact on the strategy which is being used by the organisation. An organisation can't use any prescribed strategy howsoever if the same is not designed to adjust and adapt with different market strategies to make it happen in real. The various types of strategies: the differential strategy, low cost strategy or focus strategy could be used only when the structure is designed accordingly because it would give a rather dynamic shape to the strategy used.

2. High levels of centralisation, specialisation and formalisation enjoys a lower cost based strategy more than a differential strategy because of the stated reasons:

1. Centralisation means where the decision making powers are being centralised and not distributed towards the lower level managers to make the decisions. This helps in reducing the cost of the organisation as more employees are not appointed as managers or the key decision makers as the central authority would only have the control to take the decisions not everyone which would reduce the amount of cost.

2. Specilisation means where the employees are being provided with the division of work and each employee performs a particular task to be specialised in that domain. Specilisation is directly related to the effectivity and efficiency. It would increase the speed of doing the tasks and thus would also decrease the per unit cost and increase efficiency of the actions and operations.

3. At last, formulisation means designing of the formulated goals, tasks and standards for the employees of the organisation to regard them and guide them with how the work has to be performed. This would help in reducing the wastage and the faults produced by them and thus, would help in gaining a los cost strategy for the organisation to have a competitive edge in the market.