As I’ve written before, I’m slowly reading Alfred D. Chandler’s Strategy and Structure, which was published in 1962. Chandler documents the transformation of four of America’s largest companies through the early 1900s: DuPont, General Motors, Standard Oil of New Jersey, and Sears, Roebuck.
The book’s thesis is that corporate structure follows strategy. As these large companies added product lines, and expanded geographically, they had to change their organizational structures. Interestingly, they all settled on the multifunctional division format.
A quick introduction to a multifunctional division corporate structure
What’s a multifunctional division structure? Let’s break the term apart, and start with the first word: multifunctional. Functions, in a corporate sense, are the departments you typically imagine, e.g.
- Human Resources (HR)
- Information Technology (IT)
The second word is division. A division is a part of a company with a specific focus. You can think of a division as a product line. Take Microsoft, for example. Microsoft organizes itself into three segments, which we can take as divisions:
- Productivity and Business Processes (i.e. Office)
- Intelligent Cloud (i.e. Azure)
- More Personal Computing (i.e. Windows)
These divisions are multifunctional in the sense that they each have their own support for the various functions: Finance, HR, IT, et cetera. On top of these divisions, Microsoft has a C-suite, where its senior most executives oversee the whole business.
Strategy emerges from the C-suite
In Chandler’s telling, in the early days of corporate America, the senior executives meddled too much in the day to day business. They abdicated their responsibility for long range planning. They were too consumed in fighting fires and managing interpersonal conflict.
In time, as these large corporations adopted their mature structures, the senior executives embraced their roles as designers of strategy. And for a number of very good reasons, as Chandler describes on page 311 of Strategy and Structure, the “entrepreneurs” (what today we call senior executives) decided to work in groups:
At the entrepreneurial level, group action and even group decision became the more usual procedure. Here the problems considered were more complex and less routine, long-term rather than short, more concerned with difficulties to be surmounted and less with specific and immediate demands and requirements to be met. In handling entrepreneurial activities that called for thought, group decisions came to be the practice. In carrying out operational ones where quicker action was demanded, individual decision making predominated.
I want to highlight the last distinction in this excerpt. Groups attacked thought-heavy challenges. Individuals attacked action-heavy challenges.
As soon as I read that passage, I remembered a section from Richard Rumelt’s Good Strategy, Bad Strategy. Here’s what Rumelt says on page 268, about the essential skills you need for setting strategy:
To guide your own thinking in strategy work, you must cultivate three essential skills or habits. First, you must have a variety of tools for fighting your own myopia and for guiding your own attention. Second, you must develop the ability to question your own judgment. If your reasoning cannot withstand a vigorous attack, your strategy cannot be expected to stand in the face of real competition. Third, you must cultivate the habit of making and recording judgments so that you can improve.
All three of these skills are easier to find in groups, than in individuals. It’s easier for a group to fight myopia, because different people will take different views. A group will naturally question its own judgment, as long as the environment is safe and members feel free to contribute. A group setting also promotes better documentation, to ensure alignment of members and assignment of responsibilities and deadlines.
A one person strategy team would require a superhero
It’s not that a single person can’t design an effective strategy under favorable conditions. It’s that, for an organization the size and scale of DuPont, or General Motors, or Sears…you need the wisdom of a team.
Think about what you’re trying to accomplish with strategy. You’re trying to identify prevailing market forces. You’re trying to project how suppliers, competitors, and customers will respond to these forces. You’re trying to imagine how business models might change. You’re trying to consider all the ways you might deliver value in the future.
Any one mind is too constrained. We have too many biases. We only have access to our own experiences. We have only read the books that we’ve read. We might be extraordinarily capable, but for a challenge on the scale of strategy, we need a bunch of great minds to have success.
Empirically, people avoid the hard work of strategy
One of the lessons of Chandler’s Strategy and Structure is that even executives try to avoid the work of strategy. Before large companies settled on modern organizational structures, executives immersed themselves in the day to day operations of the business. They deliberately avoided the work of strategy, in part because the rewards of day to day work were immediate. Strategy is a game of, at best, delayed gratification.
It took world class organizational designers to impose structures that forced executive teams to design effective strategy. The world is lacking good strategy, and has been for as long as we’ve had corporations. We can see one of the reasons: it’s hard to do the work. We need to build robust, diverse teams that force themselves to solve the difficult problems around strategy. Organizational design is one way to nudge the most capable people in the direction of doing effective strategy work.
Take that lesson to heart. Know that any effort you put into solving strategic challenges is going to reflect favorably on you. Most people will avoid strategy altogether. Others will only give a cursory pass at it, relying on buzzwords and goal statements rather than forming clear, precise thoughts. Strategy work will exercise mental muscles that otherwise would atrophy. A little effort here can go a long, long way, in terms of your personal and career development.