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Last week, we looked into the concept of organizational design, which was defined as the process of choosing and implementing a structural configuration of the organization. We saw that the challenge for management is to adjust the structural configuration to best meet the challenges faced by the organization at any given time.The size of organizations is one important element that determines how they are organized. In large and complicated organizations, direct personal communications are replaced by mediated forms of communications, and policies, rules and procedures are used as substitutes for direct supervision.
Technology is another factor that influences organizational design and we divided technology into three categories: small-batch, mass production and continuous-process manufacturing. Organizations that employ small-batch technology produce tailor-made products that meet customer’s need. Users of mass-production technology produce homogeneous products through an assembly-line type of operation. Teams are dependent on units before them, alike sprinters in a relay team. Organizations using continuous-process technology produce of few products with considerable automation. When technology and organizational design are properly matched, a company is likely to be more successful.  
An effective organizational design also reflects the environment in which the organization operates. A basic concern that must be addressed in analyzing the environment of the organization is its complexity. A more complex environment provides the organization with more opportunities and also more problems. When the economy is growing, for example, customers are spending more money and banks are willing to invest in the future of the organization. More organizations survive, there are more opportunities and there is potential for change. The organizational design will need the capability to recognize these opportunities and capitalize on them. When on the other hand the economy is in decline, we see that firms typically cut working hours and begin laying off workers or find other ways to restructure. In some countries governments sometimes support large companies to prevent too many people from losing their jobs.
Organizational strategy is the process of positioning the organization in its competitive environment and implementing actions to compete successfully. Two types of generic strategies are common to many businesses: differentiation and efficiency. The underlying assumption is that management selects technology to produce either comparatively inexpensive, standardized products or more expensive, tailor-made products and services. If the firm competes by providing lower cost, standardized products, it relies on the economies of scale for efficiency. If it produces higher quality, unique products, it differentiates itself.  Now, an organization has a better chance of prospering if it can fit its strategy and structure to environmental requirements.
In a comparatively new and growing industry, for example, a company may be on the leading edge of technological development. By emphasizing innovation and unique product quality, it can grow and prosper. The strategy is differentiation.
When faced with growing competition and more customers, the company may opt for an efficiency strategy. By limiting choices and providing standardized products and services, the company can cut production costs and offer lower prices. By capitalizing on economies of scale, for example, fast food chains can produce standardized food for a fraction of the costs of a full-service restaurant. The efficiency strategy places a premium on routine, standardization and consistency.
Obviously, the firm needs to have the skills and abilities to capitalize on its chosen strategy. A key to success for most organizations is an appropriate modification of the strategy so that the organization builds upon and refines its unique experience and competencies. In the process of building upon its capabilities, the firm may actually shift strategies and combine elements of several strategies.       
Size of the operation, the technology to be used, environmental factors and strategy combined thus form the basis to choose the organizational structure that best fits the company, like for example an adhocracy (where technology dominates), bureaucracy (where hierarchy dominates), conglomerate or joint venture. The challenge for management is to find that best fit.

Source: Managing Organizational Behavior – by Schermerhor/Hunt/Osborn