Every engineer knows that form follows function. Adam Smith, in his “An Inquiry into the Nature and Causes of the Wealth of Nations” claimed the “invisible hand of the market” determined how businesses would respond to economic determinants. Chandler, a professor of business history at Harvard, decided that “the visible hand of management” had a greater impact on business success than the invisible hand of market forces.
His initial thought leadership statement was that really successful businesses really strategize. They develop marketing, sales, key account management, production, information sharing, and financial control strategies. They do this to direct the market, as well as to respond to it. Many major corporations developed strategies to dominate geographically separate markets. As they did so, they changed their structures as the need demanded.
Chandler said that business strategy and corporate structure are linked in indissoluble ways. In his book “Strategy and Structure” (1962) he stated:
- Strategy is the determination of long-term goals and objectives, courses of action, and allocation of resources.
- Structure is how the organization is constructed in order to administer the strategy, with its constituent hierarchy, lines of communication, and levels of responsibility and authority.
Structure exists, not to simply ensure efficient processing but to deliver effective performance in line with the business’s over-arching strategic goals. The CFO, for example, may be interested in having delivery systems which minimize costs in order to meet this quarter’s financial targets, but effective delivery systems to meet ‘just in time’ production targets should take precedence over short-term cost-cutting initiatives.
Management authorities and responsibilities must all be justified in terms of the bigger picture. Today, major corporations operate in horizontal and vertical structures. Decentralization is essential in large corporations. Centralized strategic planning allows local managers to focus on day-to-day operations in line with the bigger picture.
Geographically-separated activities, such as sales and marketing, must be mutually supportive. That requires a communication system that enables more than just efficient flow; the communication – email, text, social media channels, etc. – must support the strategy.
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