Why are some firms able to perform better than others in profitability over a sustained period of time? Over the years, researchers have answered the question in three different ways:
The design approach
In early 60s, Alfred Chandler (1962) proposed that structure follows strategy. Top managers generally formulate strategy after a careful analysis of opportunities in the environment and the strengths and weaknesses in the organization. Managers decide initially what industry the organization will enter, how it will compete where it will be located, and the kind of organization it will be, who will be the top managers, and who will directly influence the organization structure. Alfred Chandler has clearly shown the close relationship between the strategy a business adopts and the structure of its organization. After carrying out intensive case studies of four of the largest United States concerns (Sears, Roebuck, General Motors, Standard Oil and Du Pont) he concluded that changes in corporate strategy will precede and cause changes in organization structure. He found that all the companies studied had shifted their designs from a simple centralized pattern to a more elaborates divisionalized pattern following changes in population, national income, technological innovations , expanding product lines etc. The strategy chosen by the manager is the primary explanatory variable for organizational structure in all the cases. The influence of strategy on structure may be expressed thus:
1) Strategy determines organization tasks.
2) Strategy influences the choice of technology and people appropriates for accomplishments of those tasks – and these n turn, influence the appropriate structure.
3) Strategy determines the specific environment within which the organization will operate.
The Harvard scholars (Kenneth Andrews and others) after conducting large number of case studies have given a concrete shape to Chandler’s prescriptions by proposing that strategy basically represents fundamental congruence between external opportunity and internal capability (Mintzberg) To be successful managers have to align the actions of various departments in such a way as to reach the overall organizational objectives. They have to scan the environment for opportunities and threats: look into internal strengths and weaknesses and achieve the best fit between these. Firms that achieve the best fit between internal and external factors taste success quickly and get ahead others.
The Analytical approach:
Igor Ansoff (1965) a leading proponent of the analytical approach tried to weave a fire garment out of the loose threads developed by Harvard researchers. He tried to examine two things basically (1) whether strategy had a distinct context of its own (2) whether it can be described in a structural way. Ansoff felt that strategy can be examined from several angles; institutional corporate business and functional level.
Corporate level – (What businesses should we be in)
Business level – (How to function in a business once selected).
Functional level – (How to change internal operations such as manufacturing, marketing, finance, personnel, R&D etc)
Institutional level – (How to change external relationships in a ever changing dynamic political world).
Ansoff felt that strategy can be divided into certain inter related complementary components aimed at managing growth through diversification. Ansoff in this regard stated thus strategic decisions are primarily concerned with external rather than internal problems of the firms and specifically with the selection of the product mix that the firm will produce and the markets t which it will sell.
The positioning Approach:
During the 1970s the diversification moves of many large companies s have failed to deliver the anticipated synergies. The oil crisis, competition from Japanese and European firms compounded the problem further. In place of diversification and growth, firms started putting more emphasis in achieving competitiveness. .