In this post, we are discussing how organizational structure helps align employees with strategy. Organizational structure is one of the key steps in strategic alignment. Lets review how we get strategic alignment. There are five basic steps that you must take to assure your employees are aligned with your company’s strategies.
First, employees must have the conceptual tools required for good strategic thinking about their work.
Second, employees must understand the strategy.
Third, your organizational structure needs to be aligned with your strategy.
Fourth, strategy must be reflected in the structure of individual jobs – especially those in critical areas.
Fifth, you must have buy-in to the strategy.
Let’s look at the Third and Fourth of these requirements in more detail.
Organizational structure can greatly help or hinder strategic alignment
Third, organizational structure can greatly help or hinder strategic alignment. There are several ways this can happen, but let’s look at one example. It’s very common in larger organizations to find a “silo effect”, where the organization is very effective vertically within a department or division, yet lacks efficiency and flexibility in activities which require cross-departmental cooperation. This effect will play in your favor if you create these “silos” around areas which may become separate strategic business units, but may present obstacles to integrating an acquired company, or tackling organization- wide strategic change in areas like quality or IT, which typically require cross-functional teams to succeed. Some very successful organizations, such as Hewlett-Packard, have taken this concept into account by creating “matrix” organizational structures. These structures attempt to break down “silo” walls by creating reporting structures by both operational function (i.e. manufacturing, accounting) and market or product (i.e. home office printers, banking industry).
The way you hire, train, compensate and retain the employees you have in key strategic areas contributes to your employees’ strategic alignment
The fourth item, job structure, is a pretty broad topic. It’s very important that the way you hire, train, compensate and retain the employees you have in key strategic areas works with your strategies. If you target commodity customers, for example, you definitely want all these things to reflect your commodity orientation. For example, in your hiring you want to be hiring people with an eye towards the fact that they might be driving costs up or down through their skills. Your commodity outlook is going to be reflected in one of two ways: either you want high-quality people who by virtue of their quality and productivity keep your costs down or you want cheap people who will keep your costs down simply because they cost less to pay. Any place where you are hiring smart expensive people, you want to be sure you can use the skills of those people to drive your costs down, otherwise all you’re doing is driving your cost up.
On the other hand, if you have a specialty strategy, you definitely want to be looking for people who add value to your product or service, so smart expensive people in your company will need to add value commensurate with the cost of hiring them. At the same time, you may have ways to add value with inexpensive people and if you do, you need to manage them to think about the customer and the product or service the right way. This is especially important because inexpensive people may have difficulty understanding certain specialty marketplaces.
In any case, you need to remember that you will be challenged by the cost of rejecting otherwise well-qualified job applicants who won’t fit with your strategy. A big challenge that companies face beyond this is the tendency to use specialty people in places where they should commodity ones – or vice versa. In a commodity company, this drives costs up, and the potential for added value is lost on the targeted commodity customers. In specialty companies, commodity people and commodity job structures drive value out, which will devalue your offering and drive specialty customers away. There is no question that matching employees and their jobs to strategy has a big payoff.
Note: This post is the third in a series of posts from Robert Bradford’s article Building Support for the Strategic Plan: Aligning Employees with Strategy originally posted in Compass Points in October 2001. The first post introduced this series. You can read it here. The second post discussed the First and Second steps. You can read it here. The next post in this series will discuss the Fifth step and conclude the series.
How well does your organizational structure align your employees with your strategy? Attend the Simplified Strategic Planning Seminar for more instruction on how to improve your alignment as well as all other aspects of Simplified Strategic Planning.
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