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Product Grouping vs Function Grouping

Good morning, ladies and gentlemen! Today  well  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.
Well 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  Id  like  to
underline that all  our  presentation  will  be  told  from  the  behavioral
scientists viewpoint.
    So, during our presentation well offer you some elements to  consider,
then well talk about behaviorists findings on  that  matter  and  consider
the  example  with  two  plants.  After  that  well   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
    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
 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  organizations  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.