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Because each organization is unique, even those in the same industries employ
different strategies that are feasible and likely to be successful. Exhibit 1–8 provides
a model of the major factors that influence an organization’s strategy. These
factors include organizational structure, core competencies, organizational constraints,
organizational culture, and environmental constraints.
Organizational Structure
An organization is composed of people, resources other than people, and commitments
that are acquired and arranged to achieve specified goals and objectives


Goals are desired results expressed in qualitative terms. For example, a typical
goal of profit-oriented firms is to maximize shareholder wealth. Goals are also likely
to be formulated for other major stakeholders, such as customers, employees, and
suppliers. In contrast, objectives are quantitatively expressed results that can be
achieved during a pre-established period or by a specified date. Objectives should
logically be used to measure progress in achieving goals. For example, one of ABN

AMRO’s goals is to become a leading bank in the euro. In pursuit of that goal, the
bank established an objective of having all of its systems euro-compatible by January
1, 1999, when the euro was introduced. The objective was achieved at tremendous
cost, but management believes that ABN AMRO’s new ability to offer harmonized
banking services throughout Euroland will be worth the investment.14
An organization’s structure normally evolves from its mission, goals, and managerial
personalities. Organizational structure reflects the way in which authority
and responsibility for making decisions is distributed in an organization. Authority
refers to the right (usually by virtue of position or rank) to use resources to accomplish
a task or achieve an objective. Responsibility is the obligation to accomplish
a task or achieve an objective.
A continuum of feasible structures reflects the extent of authority and responsibility
of managers and employees. At one end of the continuum is centralization,
where top management retains all authority for making decisions. Centralized firms
often have difficulty diversifying operations because top management might lack
the necessary and critical industry-specific knowledge. The people who deal directly
with the issues (whether problems or opportunities), have the most relevant
information, and can best foresee the decision consequences are not making the
decisions.
At the other end of the continuum is decentralization, in which the authority
for making decisions is distributed to many organizational personnel, including
lower-level managers and, possibly, line employees. In today’s fast-changing and
competitive operating environment, implementation of a decentralized organizational
structure in a large firm is almost imperative and typically cost-beneficial.
However, for decentralization to work effectively, there must be employee empowerment,
which means that people are given the authority and responsibility to make
their own decisions about their work. A decision to decentralize is also a decision
to use responsibility accounting, which is discussed in Chapter 18.
Most organizations operate at some point on the continuum other than at either
of the ends. Thus, a top management decision might be the location of a new
division, while the ongoing operating decisions of that division might lie with the
new division manager. Long-term strategic decisions for the division might be made
by the division manager in conjunction with top management.