The Typology of Strategies; their Impact on Organizational Structure
Structure and strategy are related.
How we structure a company should be driven by the strategy that organization has decided to employ in the marketplace. We can use the PAEI code to classify strategies and analyze how they impact the organizational structure.
You can have a (P) strategy, an (A) strategy, an (E) strategy, or an (I) strategy when you design a strategic plan for a company. You have to ask yourself,
“What competitive advantage can we establish over our competitors? Which of our strengths can we really capitalize on? Which strategy will allow us to be stronger in comparison to them?”
Top managers need to ask, “What are our areas of strength?” and “How can we further develop, emphasize, and promote those strengths in our marketplace?”
Now, what is the (P) strength? Productivity. Some organizations are very, very, very productive. They have the capability to produce more, faster and better than their competition. When building the organizational structure of their company, they need to pay extra attention to maintain and improve the effectiveness of their production processes. This is where their competitive advantage is, and they will want to preserve that market advantage by structuring for sales teams, manufacturing and new geographic market expansions.
If an organization has well organized processes, runs efficiently and is systematized, it have great (A) strategy strengths. What is an (A)? Administrative structure. These organizations will likely offer superior customer service, provide a great help desk, and warranties. Their supply chain will be second to none. Their work flow, also second to none. (A) structure companies can be on time better than anybody else. A good example of an (A) organization is Amazon. The primary advantage Amazon has in its market place is its delivery system – Amazon has developed a business structure around and heavily invested in building and perfecting a state of the art robotic operating systems in the warehouses. As a matter of fact, if you are promoting material through Amazon (as we at Adizes are) and you want to ship the goods yourself, they make you sign an agreement saying you will deliver whatever is ordered within 24 hours, or they will discontinue the relationship. What are their key competitive strategies? Timeliness, organization, on-time shipment. In this case, the org chart should show tremendous importance and focus on perfecting and maintaining the supply chain and distribution functions.
Other companies follow an (E) strategy; innovation. An example of a highly innovation-oriented organization is 3M. They come up with a new product almost every year. They are way ahead of the competition. By the time the competition copies their product in order to compete, 3M is already on to the next product. Their market strategy is focused on introducing new products, solving more consumer problems. So, their structure is organized around heavy research and development, product testing and consumer responses to new ideas. The 3M structure supports its strategy of innovation.
An (I) strategy company, whose business structure is inherently internally people and experience oriented, would focus on providing the best working environment and thus attract the highest level of industry talent available. That would be Google. Google provides an environment and work experience that makes everybody try to work for them. It’s different for Amazon. In Amazon, people are known to cry at their jobs, because the company’s attention is on (A) then (P), and not on (I).
When doing Adizes, we encourage our patients to look in their industry, and determine what strengths they have, what strategy will allow them to gain market advantage over the competition. We ask: “Are you a (P) company, or more structured for (A) strategies? Are you more (E) oriented, or an (I) concerned organization?” Your company cannot be “the best” in everything. You cannot be perfect in all four PAEI roles within your industry. It is too expensive. You must choose one or two strategies to remain focused and competitively advantaged.
The Adizes PAEI strategy impacts structure, where the emphasis will be reflected in the location of the units in the hierarchy, on budgets (how resources are allocated), and on the selection of staff and what gets rewarded.
Strategy, structure, information, and rewards must be aligned and designed considering which of the PAEI roles the company is emphasizing in its strategy.
Ichak Kalderon Adizes