Product Grouping vs Function Grouping

Good morning, ladies and gentlemen! Today we’ll discuss the problem

that often appears towards the manager. This is a problem of organizational

choice or how to group product activities by product or by function. In

other words, should all specialists in a given function be grouped under a

common boss, regardless of differences in products they are involved in, or

should the various functional specialists working on a single product be

grouped together under the same superior.

But the aim of our presentation is not to persuade you that only one

way is the right and only this way should be used in each organization.

We’ll try to show you that each reorganization is temporary and manager

always have to find some middle positions between that two ways of

organization, he have to find some compromise. Another point I’d like to

underline that all our presentation will be told from the behavioral

scientist’s viewpoint.

So, during our presentation we’ll offer you some elements to consider,

then we’ll talk about behaviorist’s findings on that matter and consider

the example with two plants. After that we’ll summarize all our

presentation and maybe give some useful advice for managers.

If that clear let me begin our presentation.

First of all we have to understand what makes those issues so

difficult. It is useful to review all the criteria often relied on during

making decisions. Typically, managers have used technical and economic

criteria. For example, they may ask themselves “Which choice will minimize

payroll costs?” or “Which will best utilize equipment and specialists. This

approach shows us the real logic of traditional management and has strong

support from classical school of organizational theory. The classical

school theorists suggested that the manager should make the choice based on

the following three criteria:

. Which approach permits maximum use of special technical knowledge?

. Which provides the most efficient utilization of machinery and equipment?

. Which provides the best hope of obtaining the required control and

coordination?

As you can see there is nothing wrong with these criteria, but they

fail to recognize the complex set of trade-offs involved in these

decisions, cause managers often make changes that produce unanticipated

results and even reduce the effectiveness of organization. For example

there is an organization which few years ago shifted from a product basis

to a functional basis. The reason was that it would lead to improved

control of production costs and efficiencies in production and marketing.

While the organization did accomplished these aims, it found itself less

able to obtain coordination among its local sales and production units.

This example pinpoints the major trade-off that the traditional

criteria omit. Developing highly specialized functional units makes it

difficult to achieve coordination or integration among these units. On the

other hand, having product units as the basis for organization promotes

collaboration between specialists, but the functional specialists feel less

identification with functional goals.

Now lets turn to another point of view. Behaviorists’ recent studies

highlighted three other important factors about specialization and

coordination. They are:

. Differentiation

. Integration

. Communication

Lets talk about these three factors in more detail. First,

differentiation, which simply means the differences in behavior and thought

pattern that develop among different specialists in relation to their

respective tasks. Differentiation is necessary for functional specialists

to perform their jobs effectively.

Differentiation is closely related to achievement of coordination, or

what behavioral scientists call integration. This means the collaboration

between specialized units or individuals.

While achievement of both differentiation and integration is possible,

it can occur only when well-developed means of communication among

specialists exist in the organization and when the specialists are

effective in resolving the inevitable cross-functional conflicts.

These recent behaviorists studies point to the following three

questions that managers must consider when they choose between a product or

functional basis of organization.

1. How will the choice affect differentiation among specialists?

2. How does the decision affect the prospects of accomplishing

integration?

3. How will the decision affect the ability of organization members to

communicate with each other resolve conflicts and reach the necessary

joint decisions?

There appears to be a connection between the appropriate extent of

differentiation and integration and the organization’s effectiveness in

accomplishing its economic goals. What the appropriate pattern is depends

on the nature of external factors – markets, technology and so on – facing

the organization, as well as the goals themselves. The question of how the

organizational pattern will affect individuals members is equally complex.

Management must consider how much stress will be associated with a certain

pattern and whether such stress should be a serious concern.

To explore in more detail the significance of modern approaches to

organizational structuring, we shall describe one recent study conducted in

two manufacturing plants – one organized by product, the other on a

functional basis.