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.

How will the choice affect differentiation among specialists?

How does the decision affect the prospects of accomplishing integration?

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.