In the early 2000s, Blockbuster was the most popular video rental company, a family favorite. Few years later, digital streaming services became big, with Netflix getting all the traffic online. Blockbuster tried to compete but in 2010, the company filed for bankruptcy. Blockbuster's failure to adapt to changing consumer preferences, unsustainable business model, and inability to keep up with its competitors in the digital market were some of the reasons cited for the failure. If the list above is the disease that led to the death of Blockbuster, then there is a cause for the disease, which is the organizational structure.
Blockbuster's structure had many levels with centralized management. The company had a clear chain of command; executives at the top made decisions and passed them down to middle management through many levels and then to each store. A straightforward and concise structure designed to achieve consistency. But this structure also made it challenging for the company to respond quickly to changing customer preferences and keep up with competitors.
A Simple Look at the Blockbuster Structure.
The CEO was at the top of the organization and was responsible for the company's overall strategy and direction. Like any typical hierarchical structure, the functional executives were under the CEO. This structure succeeded in creating consistency which the company needed at the time due to its growth but it also made it difficult for the company to quickly adapt to changing trends. Using the centralized management system, all decisions were taken by the top management and passed down through many levels to the individual stores. This made implementing new ideas and strategies take much longer time as seen in the slow response to the rise of digital streaming.
Many companies take for granted the role of the organizational structure in the overall success of the business, making it a cause in the collapse of most companies.
Importance of Organizational Structure
The structure shows the firm's formal reporting relationships, authority, procedures, controls, and decisions making process. It shows how people carry out various value-creation activities and tasks and influences how managers work and the decisions resulting from their work.
An effective structure should be stable and flexible. Structural stability provides the steadiness the organization needs to implement strategies to maintain its competitive advantage. A sturdy structure also gives the organization consistency in its value-creation activities. On the other hand, structural flexibility provides the opportunity to explore possibilities and allocate resources to activities that will shape the competitive advantage the firm will need to succeed. A rigid structure may cause frustrations leading to loss of business.
Relationship Between Strategy and Structure
Strategy and structure go hand in hand. The structure of a company is based on its strategy and affects decision making and implementation. The strength of the relationship shows that strategy has more influence on the structure; therefore, in choosing the direction an organization should take, it must first consider the strategy and then select a structure that will help implement it successfully. Suppose a company wants to implement a related diversification strategy, that is, sell other products and services related to its core business, e.g., A radio station diversifying into print media should have a structure that supports the strategy; so a Multidivisional Structure may be suitable using SBUs, where tactical decisions of each portfolio are made.
Every strategic direction should have the right organizational structure to support it. For example, Cee Beverages Ltd, succeeded with a functional structure and decides to expand into the fashion industry. The move is an unrelated diversification. In implementing this strategy, the company would have to review its organizational structure and implement one that will support it. Using the same functional structure to implement the new strategy would create coordination and communication problems, eventually affecting performance.
An effective organizational structure will clarify roles and responsibilities, ensuring everyone knows what they are responsible for and whom they report to, eliminating confusion and overlapping duties. It also enables employees to understand how their work fits the overall goals, making everyone work towards achieving them.
If aligned correctly, the structure should enable the organization to respond quickly to changes in the market, allocate resources where needed most, reorganize to meet new challenges and take advantage of new opportunities.
In summary, an organization's success depends, to a large extent, on how people and resources are assigned to tasks and how these work together to achieve the goals set. It should encourage efficiency and productivity, and help companies adapt to changing circumstances to stay competitive.
In the next post, “Designing an Organizational Structure That Drives Success."
we will be looking at the basics of creating an organizational structure for strategy implementation.
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