Organizational Structure and how firms adapt to the external environment

In order to be effective and attain strategic goals and objectives, firms should be able to adapt to the changing demands posed by the environmental variables. According to Daft & Daft (2010), achieving the ability of a firm to adapt to its external environment is determined by its internal structures, which plays an instrumental role in ensuring that there is a fit between the organizational structure and environmental factors and ultimately influences organizational effectiveness. Organizational effectiveness is a multi-faceted aspect and varies across different organizations since they face dissimilar environments, produce unique products/services, and are at different developmental stages; as a result, there are different models used in assessing organizational effectiveness (Dressler 2004). Nevertheless, the two universal models of assessing organizational effectiveness include the firm’s internal versus external focus, and the focus on flexibility versus control. The measures of organizational structure include complexity, formalization and centralization, all of which have a significant influence on the measures of organizational effectiveness (Godwyn 2011).

It is apparent that the type of organizational structure determines how the firm responds to changes taking place in the environment; as a result, the organizational structure determines the fit of the organizational strategies relative to its environment (Goold & Campbell 2002). For instance, a fit exists between a functional organizational structure and an undiversified strategy, and diversified strategy and multidivisional structure. In addition, undiversified organizations have a tendency to retain the functional structure whereas diversified organizations have a tendency to adopt the multidivisional structure. It is apparent that the organizational structure determines the strategic fit of the firm relative to its environment. The underlying argument is that the organizational structures have a direct effect on a firm’s measure of organizational effectiveness (Jelinek 2010). For instance, a weak structure can result in organizational inefficiencies stemming from structural flaws such as creativity being hindered by bureaucracy, which in turn hurts organizational productivity (Godwyn 2011).

References

Daft, R & Daft, M 2010, Organization Theory and Design, Cengage Learning EMEA, New York.

Dressler, S 2004, Strategy, Organizational Effectiveness and Performance Management: From Basics to Best Practices, Universal-Publishers, Boca Raton.

Godwyn, MHJ 2011, Sociology of Organizations: Structures and Relationships, Pine Forge Press, Los Angeles.

Goold, M & Campbell, A 2002, Designing effective organizations: how to create structured networks, Jossey-Bass, New York.

Jelinek, S 2010, The Impact of Management Practices and Organizational Structure on Firm Performance: A Cross Country Empirical Analysis, GRIN Verlag, New York.