Organizational Design

Strategy and Performance Management

Andy Weeger

Neu-Ulm University of Applied Sciences

July 22, 2025

Learning objectives

After this section, you should have a solid understanding of

  • the need to match a firm’s structure with its strategy;
  • different types of organizational structure;
  • advantages and disadvantages of these structural types;
  • key strategic issues related to CDO/CIO roles;
  • the concept of structural ambidexterity and how it relates to CDO/CIO roles;
  • as well as the need for and characteristics of periods of convergence and upheaval.

Prologue

Changes in strategy often require changes in the way an organization is structured, for two major reasons. First, structure largely dictates how objectives and policies will be established [..] The second major reason [..] is that structure dictates how resources will be allocated. David and David (2016) *[p. 329-330*]

Organizational alignment

Definition

Powell (1992) defines organizational alignment as the coherence among various components within an organization, including structure, processes, culture, and strategies.

Effects of alignment

Firms with a high degree of alignment are better equipped to adapt to changes in their external environment, are more resilient to threats and better able to capitalize on emerging opportunities.

McKinsey 7S framework

Figure 1: McKinsey 7S Framework (Channon and Caldart 2015, 137)

Structure x strategy

Structure follows strategy

Changes in strategy often require changes in organizational structure because structure dictates how objectives and policies are established and determines how resources are allocated (David and David 2016).

Need for structural changes

Structural adaptation becomes necessary when strategic objectives change, new markets or products are pursued, or environmental conditions shift significantly.

Understanding this relationship, what structural options are available to organizations, and how do they evolve over time?

Integration strategies

Overview

Organizations can pursue vertical integration (forward or backward), horizontal integration, or related diversification.

Each integration strategy requires different structural approaches.

Structural design principles

Lawrence and Lorsch (1967) outline following guidlines for integration strategies:

  1. Differentiation: Maintain specialized capabilities in each integrated unit
  2. Integration mechanisms: Create coordination systems across integrated operations
  3. Conflict resolution: Establish processes for resolving inter-unit conflicts
  4. Information systems: Develop shared information and control systems

Structural options

Overview

Organizations can choose from simple structures for small firms, functional structures for specialization, divisional structures for diversification, or matrix structures for complex coordination.

Simple structure

Simple structure based on Dess et al. (2014)

 

Functional structure

Functional structure based on Dess et al. (2014)

 

Divisional structure

Divisional structure based on Dess et al. (2014)

 

Matrix structure

Matrix structure based on Dess et al. (2014)

 

Strategic business units

Strategic business unit (SBU) structure represents a hybrid approach that combines divisional autonomy with corporate portfolio management and strategic coordination.

Performance implications

Different organizational structures create distinct performance patterns: efficiency vs. innovation trade-offs, speed vs. coordination challenges, and cost vs. flexibility implications.

Structural evolution patterns

Growth patterns of large corporations according to Dess et al. (2014)

 

 

 

 

 

 

 

 

 

Structure x DT

Leadership in DT

Digital transformation (DT) requires new leadership roles: CIOs evolving from operational to strategic and CDOs emerging to lead transformation.

Reflection

Form small groups of 3 to 4 students. Discuss your findings from reading Lorenz and Buchwald (2023). Create a presentation that summarises the key findings. Each presentation should last 5 minutes.

Your summary must include the following considerations:

  • the roles of CDO and CIO,
  • strategic reasons for introducing a CDO role,
  • the dynamics and challenges related to the relationship between CDOs and CIOs,
  • (structural) ambidexterity in relation to the roles of CIO and CDO,
  • and recommendations for the design and implementation of organisational structures that efficiently support digital transformation.

Roles

The Chief Information Officer (CIO) traditionally leads the IT department, ensuring technology infrastructure supports organizational goals. They manage data, information systems, and IT operations as well as they address cybersecurity, data privacy, and compliance with IT regulations (Lorenz and Buchwald 2023).

The Chief Digital Officer (CDO) is responsible for driving digital innovation and transformation across the organization. They often focus on enhancing customer experiences through digital channels and technologies. They collaborate across departments to integrate digital solutions into various aspects of the business (Lorenz and Buchwald 2023).

They may face challenges in aligning strategic objectives and collaborating effectively.

Strategic imperative for a CDO

The CDO role is typically introduced with the objective of leading digital transformation initiatives and ensuring that the organization maintains a competetive edge in the digital age.

Excursus: structural ambidexterity

Organizations need to balance exploitation (efficiency and optimization) and exploration (innovation and new opportunities) through structural solutions.

Structural transitions

Prologue

Most successful firms experience periods of convergence with incremental changes followed by periods of upheaval with major system-wide transformations (Mintzberg 2014).

Periods of convergence

In convergent periods stable and interconnected social systems emerge, in which the most successful and resilient actors maintain their position.

Periods of upheaval

Periods of upheaval with frame-breaking change occurs in response to major environmental shifts and involves revolutionary transformation of organizational systems.

The need for discontinuous change usually springs from (Mintzberg 2014):

  • Industry discontinuities (emergence of substitutes, new technologies)
  • Product life-cycle shifts (moving between emergence, growth, maturity, decline)
  • Internal company dynamics (leadership changes, ownership shifts, strategic reorientation)

Leadership requirements

Convergence periods require maintaining alignment and incremental adjustment while frame-breaking change demands comprehensive executive involvement and fresh perspective.

Key takeaways

  • Organizational alignment among structure, processes, culture, and strategies creates sustainable competitive advantage
  • Performance implications vary by structure
  • Five main structure types serve different strategic contexts
  • Integration strategies require specific structural approaches
  • Structural evolution follows predictable patterns driven by organizational size, strategy, environment, and complexity
  • Digital transformation creates new leadership requirements with CIO and CDO roles requiring clear boundaries and collaboration
  • Structural ambidexterity enables organizations to balance exploitation (efficiency) and exploration (innovation) simultaneously
  • Organizational evolution alternates between convergence periods (incremental change) and frame-breaking transformation (revolutionary change)

Review and consolidation

The following questions are designed to review and consolidate what you have learned and are a good starting point for preparing for the exam.

  • Explain the concept of organizational alignment.
  • Relate the 7s framework to the concept of organizational alignment.
  • List reasons why firms with a high degree of organizational alignment are better able to adapt to changes in their external environment, are more resilient to threats and better able to capitalize on emerging opportunities.
  • Do a research on Strategic Business Unit (SBU) structure and explain the difference between a SBU structure and a divisional organizational structure.
  • Discuss advantages and disadvantages of a functional versus a divisional organizational structure.
  • Compare and contrast the roles of Chief Information Officer (CIO) and Chief Digital Officer (CDO) in an organization. How do their responsibilities contribute to strategy formation and strategy implementation?
  • Define and elaborate on the concept of structural ambidexterity in the context of CIO and CDO roles. How can organizations achieve a balance between exploitation and exploration in their structures?
  • How can organizational structures be designed to facilitate effective collaboration between different functional areas?

Q&A

Literature

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