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Planning FAQs
The Science and Art of Organizational Structure

As the challenges of the economic environment continue to weigh on organizations of all types, structure has become a growing issue. Last year all the attention was on strategy. This year leaders are re-evaluating the structure. Most companies initially responded to the economy by focusing on cost and efficiency. They did the analysis. They reduced duplication and eliminated unnecessary activities. They recalibrated performance expectations and in some cased adjusted headcount to match the current level of business. As a result, this past year I have seen more significant changes to strategy than I have seen in the last 10 years combined.

This shift in strategy to focus on cost has generally been successful - to a point. After a year or so of squeezing cost from the existing organizational structure, many organization have begun to hit the wall. This was predictable because as I have said before, vision drives strategy and strategy drives structure. As an organization makes fundamental changes to its strategy it should almost always adjust its structure in support of the strategy. Structure can go from being a tool to a barrier in implementing the new strategy. Bigger changes in strategy require more significant changes to the structure.

Developing the right structure for an organization requires a mixture of science and art. There are a number of principles than can be applied to the design of the organizational structure. This is the science of structure and a few of these principles include:

  • A centralized functional structure supports better control and operational efficiency.
  • A flat structure tends to support faster decision making and fewer people.
  • A structure organized around markets or customers tends to be more growth oriented.

  • The art of organizational structure comes into play when you have to put people into the boxes on the organization chart. It is easy to draw the lines and boxes but finding the right people to make the structure work is another story. When the perfect structure meets the realities of manager experience and skills, compromises are inevitable. Knowing how and when to compromise requires a keen understanding of your management resources and an understanding of how your choices will impact the strategy.
    Poll Question
    The poll question last quarter asked: How likely is it the Democrats will lose the House or Senate in the 2010 mid-term election? Here is the result:
    50%Very Likely
    35%Somewhat Likely
    0%Don't Know
    10%Somewhat Unlikely
    5%Very Unlikely
    Our poll question this quarter is: How likely is it we will see $100 per barrel oil before the end of the year?

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    Avoiding the Commodity Trap
    The definition of a commodity is a product that is so similar among competitors that price is the only consideration for selecting the supplier.

    Cost has become such a big factor in the current economy that consumers and businesses are price shopping more than ever before. The buyer wants a low price and will try to treat you as if you are selling a commodity. They found a slightly lower price and they want you to match it. If anyone asks you to match a competitor's price, what they are really saying is they want your quality, service and convenience at the other guy's low price. They know you are better or they would have already bought the other product.
    Future Topics
  • Business Leverage
  • Planning with New Leaders
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