In which structure are the functional and product forms combined at the same level of organization at the same time?
Corporations, especially manufacturers, long have wrestled with the problem of how to structure their organizations to enable employees, particularly the specialists, to do their jobs with maximum efficiency and productivity. One perplexing issue has been whether to organize around functions or products. Here, two behavioral scientists look at the question in light of recent studies. They focus on two plants (of two of the largest consumer products companies), one organized by product, the other by function. Of all the issues facing a manager as he thinks about the form of his organization, one of the thorniest is the question of whether to group activities primarily by product or by function. 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? In talks with managers we have repeatedly heard them anguishing over this choice. For example, recently a divisional vice president of a major U.S. corporation was contemplating a major organizational change. After long study, he made this revealing observation to his subordinate managers: “We still don’t know which choice will be the best one. Should the research, engineering, marketing, and production people be grouped separately in departments for each function? Or would it be better to have them grouped together in product departments, each department dealing with a particular product group? “We were organized by product up until a few years ago. Then we consolidated our organization into specialized functional departments, each dealing with all of our products. Now I’m wondering if we wouldn’t be better off to divide our operations again into product units. Either way I can see advantages and disadvantages, trade-offs. What criteria should I use? How can we predict what the outcomes will be if we change?” Companies that have made a choice often feel confident that they have resolved this dilemma. Consider the case of a large advertising agency that consolidated its copy, art, and television personnel into a “total creative department.” Previously they had reported to group heads in their areas of specialization. In a memo to employees the company explained the move: “Formation of the ‘total creative’ department completely tears down the walls between art, copy, and television people. Behind this move is the realization that for best results all creative people, regardless of their particular specialty, must work together under the most intimate relationship as total advertising people, trying to solve creative problems together from start to finish. “The new department will be broken into five groups reporting to the senior vice president and creative director, each under the direction of an associate creative director. Each group will be responsible for art, television, and copy in their accounts.” But our experience is that such reorganizations often are only temporary. The issues involved are so complex that many managements oscillate between these two choices or try to effect some compromise between them. In this article we shall explore—from the viewpoint of the behavioral scientist—some of the criteria that have been used in the past to make these choices, and present ideas from recent studies that suggest more relevant criteria for making the decision. We hope to provide a way of thinking about these problems that will lead to the most sensible decisions for the accomplishment of organizational goals. The dilemma of product versus function is by no means new; managers have been facing the same basic question for decades. As large corporations like Du Pont and General Motors grew, they found it necessary to divide their activities among product divisions.1 Following World War II, as companies expanded their sales of existing products and added new products and businesses, many of them implemented a transition from functional organizations handling a number of different products to independently managed product divisions. These changes raised problems concerning divisionalization, decentralization, corporate staff activities, and the like. As the product divisions grew and prospered, many companies extended the idea of product organization further down in their organizations under such labels as “the unit management concept.” Today most of the attention is still being directed to these changes and innovations within product or market areas below the divisional level. We are focusing therefore on these organizational issues at the middle and lower echelons of management, particularly on the crucial questions being faced by managers today within product divisions. The reader should note, however, that a discussion of these issues is immensely complicated by the fact that a choice at one level of the corporate structure affects the choices and criteria for choice at other levels. Nonetheless, the ideas we suggest in this article are directly relevant to organizational choice at any level. Elements to ConsiderTo understand more fully the factors that make these issues so difficult, it is useful to review the criteria often relied on in making this decision. Typically, managers have used technical and economic criteria. They ask themselves, for instance, “Which choice will minimize payroll costs?” Or, “Which will best utilize equipment and specialists?” This approach not only makes real sense in the traditional logic of management, but it has strong support from the classical school of organization theorists. Luther Gulick, for example, used it in arguing for organization by function: “It guarantees the maximum utilization of up-to-date technical skill and…makes it possible in each case to make use of the most effective divisions of work and specialization… [It] makes possible also the economies of the maximum use of labor-saving machinery and mass production… [It] encourages coordination in all of the technical and skilled work of the enterprise… [It] furnishes an excellent approach to the development of central coordination and control.”2 In pointing to the advantages of the product basis of organization, two other classical theorists used the same approach: “Product or product line is an important basis for departmentalizing, because it permits the maximum use of personal skills and specialized knowledge, facilitates the employment of specialized capital and makes easier a certain type of coordination.”3 In sum, these writers on organization suggested that the manager should make the choice based on three criteria: 1. Which approach permits the maximum use of special technical knowledge? 2. Which provides the most efficient utilization of machinery and equipment? 3. Which provides the best hope of obtaining the required control and coordination? There is nothing fundamentally wrong with these criteria as far as they go, and, of course, managers have been using them. But they fail to recognize the complex set of trade-offs involved in these decisions. As a consequence, managers make changes that produce unanticipated results and may even reduce the effectiveness of their organization. For example:
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. Behaviorists’ findingsWe now turn to some new behavioral science approaches to designing organization structure. Recent studies4 have highlighted three other important factors about specialization and coordination:
These recent studies, then, point to certain related 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? Will it allow the necessary differences in viewpoint to develop so that specialized tasks can be performed effectively? 2. How does the decision affect the prospects of accomplishing integration? Will it lead, for instance, to greater differentiation, which will increase the problems of achieving 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 individual 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.5 Plant F & Plant PThe two plants where this study was conducted were selected because they were closely matched in several ways. They were making the same product; their markets, technology, and even raw materials were identical. The parent companies were also similar: both were large, national corporations that developed, manufactured, and marketed many consumer products. In each case divisional and corporate headquarters were located more than 100 miles from the facilities studied. The plants were separated from other structures at the same site, where other company products were made. Both plants had very similar management styles. They stressed their desire to foster employees’ initiative and autonomy and placed great reliance on selection of well-qualified department heads. They also identified explicitly the same two objectives. The first was to formulate, package, and ship the products in minimum time at specified levels of quality and at minimum cost—that is, within existing capabilities. The second was to improve the capabilities of the plant. In each plant there were identical functional specialists involved with the manufacturing units and packing unit, as well as quality control, planning and scheduling, warehousing, industrial engineering, and plant engineering. In Plant F (with the functional basis of organization), only the manufacturing departments and the planning and scheduling function reported to the plant manager responsible for the product (see Exhibit I). All other functional specialists reported to the staff of the divisional manufacturing manager, who was also responsible for plants manufacturing other products. At Plant P (with the product basis of organization), all functional specialists with the exception of plant engineering reported to the plant manager (see Exhibit II).  Exhibit I. Organizational Chart at Plant F Exhibit II. Organizational Chart at Plant P State of differentiationIn studying differentiation, it is useful to focus on the functional specialists’ differences in outlook in terms of:
Goal orientation:The bases of organization in the two plants had a marked effect on the specialists’ differentiated goal orientations. In Plant F they focused sharply on their specialized goals and objectives. For example, quality control specialists were concerned almost exclusively with meeting quality standards, industrial engineers with methods improvements and cost reduction, and scheduling specialists with how to meet schedule requirements. An industrial engineer in Plant F indicated this intensive interest in his own activity: “We have 150 projects worth close to a million dollars in annual savings. I guess I’ve completed some that save as much as $90,000 a year. Right now I’m working on cutting departmental costs. You need a hard shell in this work. No one likes to have his costs cut, but that is my job.” That these intense concerns with specialized objectives were expected is illustrated by the apologetic tone of a comment on production goals by an engineering supervisor at Plant F: “At times we become too much involved in production. It causes a change in heart. We are interested in production, but not at the expense of our own standards of performance. If we get too much involved, then we may become compromised.” A final illustration is when production employees stood watching while members of the maintenance department worked to start a new production line, and a production supervisor remarked: “I hope that they get that line going soon. Right now, however, my hands are tied. Maintenance has the job. I can only wait. My people have to wait, too.” This intense concern with one set of goals is analogous to a rifle shot; in a manner of speaking, each specialist took aim at one set of goals and fired at it. Moreover, the specialists identified closely with their counterparts in other plants and at divisional headquarters. As one engineer put it: “We carry the ball for them (the central office). We carry a project through and get it working right.” At Plant P the functional specialists’ goals were more diffuse—like buckshot. Each specialist was concerned not only with his own goals, but also with the operation of the entire plant. For example, in contrast to the Plant F production supervisor’s attitude about maintenance, a Plant P maintenance manager said, under similar circumstances: “We’re all interested in the same thing. If I can help, I’m willing. If I have a mechanical problem, there is no member of the operating department who wouldn’t go out of his way to solve it.” Additional evidence of this more diffuse orientation toward goals is provided by comments such as these which came from Plant P engineers and managers: “We are here for a reason—to run this place the best way we know how. There is no reluctance to be open and frank despite various backgrounds and ages.” “The changeovers tell the story. Everyone shows willingness to dig in. The whole plant turns out to do cleaning up.” Because the functional specialists at Plant F focused on their individual goals, they had relatively wide differences in goals and objectives. Plant P’s structure, on the other hand, seemed to make functional specialists more aware of common product goals and reduced differences in goal orientation. Yet, as we shall see, this lesser differentiation did not hamper their performance. Time orientation:The two organizational bases had the opposite effect, however, on the time orientation of functional managers. At Plant F, the specialists shared a concern with short-term issues (mostly daily problems). The time orientation of specialists at Plant P was more differentiated. For example, its production managers concentrated on routine matters, while planning and industrial engineering focused on issues that needed solution within a week, and quality control specialists worried about even longer-term problems. The reason is not difficult to find. Since Plant P’s organization led its managers to identify with product goals, those who could contribute to the solution of longer-term problems became involved in these activities. In Plant F, where each unit focused on its own goals, there was more of a tendency to worry about getting daily progress. On the average, employees of Plant P reported devoting 30% of their time to daily problems, while at Plant F this figure was 49%. We shall have more to say shortly about how these factors influenced the results achieved in the two plants. Organizational formality:In the study, the formality of organizational structure in each functional activity was measured by three criteria: 1. Clarity of definition of job responsibilities. 2. Clarity of dividing lines between jobs. 3. Importance of rules and procedures. It was found that at Plant F there were fewer differences among functional activities in the formality of organization structure than at Plant P. Plant F employees reported that a uniform degree of structure existed across functional specialties; job responsibilities were well defined, and the distinctions between jobs were clear. Similarly, rules and procedures were extensively relied on. At Plant P, on the other hand, substantial differences in the formality of organization existed. Plant engineers and industrial engineers, for example, were rather vague about their responsibilities, and about the dividing line between their jobs and other jobs. Similarly, they reported relatively low reliance on rules and procedures. Production managers, on the other hand, noted that their jobs were well defined and that rules and procedures were more important to them. The effects of these two bases of organization on differentiation along these three dimensions are summarized in Exhibit III. Overall, differentiation was greater between functional specialists at Plant P than at Plant F. Exhibit III. Differentiation in Plants F and P Integration achievedWhile the study found that both plants experienced some problems in accomplishing integration, these difficulties were more noticeable at Plant F. Collaboration between maintenance and production personnel and between production and scheduling was a problem there. In Plant P the only relationship where integration was unsatisfactory was that between production and quality control specialists. Thus Plant P seemed to be getting slightly better integration in spite of the greater differentiation among specialists in that organization. Since differentiation and integration are basically antagonistic, the only way managers at Plant P could get both was by being effective at communication and conflict resolution. They were better at this than were managers at Plant F. Communication patterns:In Plant P, communication among employees was more frequent, less formal, and more often of a face-to-face nature than was the case with Plant F personnel. One Plant P employee volunteered: “Communications are no problem around here. You can say it. You can get an answer.” Members of Plant F did not reflect such positive feelings. They were heard to say: “Why didn’t they tell me this was going to happen? Now they’ve shut down the line.” “When we get the information, it is usually too late to do any real planning. We just do our best.” The formal boundaries outlining positions that were more prevalent at Plant F appeared to act as a damper on communication. The encounters observed were often a succession of two-man conversations, even though more than two may have been involved in a problem. The telephone and written memoranda were more often employed than at Plant P, where spontaneous meetings involving several persons were frequent, usually in the cafeteria. Dealing with conflict:In both plants, confrontation of conflict was reported to be more typical than either the use of power to force one’s own position or an attempt to smooth conflict by “agreeing to disagree.” There was strong evidence, nevertheless, that in Plant P managers were coming to grips with conflicts more directly than in Plant F. Managers at Plant F reported that more conflicts were being smoothed over. They worried that issues were often not getting settled. As they put it: “We have too many nice guys here.” “If you can’t resolve an issue, you go to the plant manager. But we don’t like to bother him often with small matters. We should be able to settle them ourselves. The trouble is we don’t. So it dies.” Thus, by ignoring conflict in the hope it would go away, or by passing it to a higher level, managers at Plant F often tried to smooth over their differences. While use of the management hierarchy is one acceptable way to resolve conflict, so many disagreements at Plant F were pushed upstairs that the hierarchy became overloaded and could not handle all the problems facing it. So it responded by dealing with only the more immediate and pressing ones. At Plant P the managers uniformly reported that they resolved conflicts themselves. There was no evidence that conflicts were being avoided or smoothed over. As one manager said: “We don’t let problems wait very long. There’s no sense to it. And besides, we get together frequently and have plenty of chances to discuss differences over a cup of coffee.” As this remark suggests, the quicker resolution of conflict was closely related to the open and informal communication pattern prevailing at Plant P. In spite of greater differentiation in time orientation and structure, then, Plant P managers were able to achieve more satisfactory integration because they could communicate and resolve conflict effectively. Performance & attitudesBefore drawing some conclusions from the study of these two plants, it is important to make two more relevant comparisons between them—their effectiveness in terms of the goals set for them and the attitudes of employees. Plant performance:As we noted before, the managements of the two plants were aiming at the same two objectives: 1. Maximizing current output within existing capabilities. 2. Improving the capabilities of the plant. Of the two facilities, Plant F met the first objective more effectively; it was achieving a higher production rate with greater efficiency and at less cost than was Plant P. In terms of the second objective, however, Plant P was clearly superior to Plant F; the former’s productivity had increased by 23% from 1963 to 1966 compared with the latter’s increment of only 3%. One key manager at Plant F commented: “There has been a three- or four-year effort to improve our capability. Our expectations have simply not been achieved. The improvement in performance is just not there. We are still where we were three years ago. But our targets for improvements are realistic.” By contrast, a key manager at Plant P observed: “Our crews have held steady, yet our volume is up. Our quality is consistently better, too.” Another said: “We are continuing to look for and find ways to improve and consolidate jobs.” Employee attitudes:Here, too, the two organizations offer a contrast, but the contrast presents a paradoxical situation. Key personnel at Plant P appeared to be more deeply involved in their work than did managers at Plant F, and they admitted more often to feeling stress and pressure than did their opposite numbers at Plant F. But Plant F managers expressed more satisfaction with their work than did those at Plant P; they liked the company and their jobs more than did managers at Plant P. Why Plant P managers felt more involved and had a higher level of stress, but were less satisfied than Plant F managers, can best be explained by linking these findings with the others we have reported. Study summaryThe characteristics of these two organizations are summarized in Exhibit IV. The nature of the organization at Plant F seemed to suit its stable but high rate of efficiency. Its specialists concentrated on their own goals and performed well, on the whole. The jobs were well defined and managers worked within procedures and rules. The managers were concerned primarily with short-term matters. They were not particularly effective in communicating with each other and in resolving conflict. But this was not very important to achieve steady, good performance, since the coordination necessary to meet this objective could be achieved through plans and procedures and through the manufacturing technology itself. Exhibit IV. Observed Characteristics of the Two Organizations As long as top management did not exert much pressure to improve performance dramatically, the plant’s managerial hierarchy was able to resolve the few conflicts arising from daily operations. And as long as the organization avoided extensive problem solving, a great deal of personal contact was not very important. It is not surprising therefore that the managers were satisfied and felt relatively little pressure. They attended strictly to their own duties, remained uninvolved, and got the job done. For them, this combination was satisfying. And higher management was pleased with the facility’s production efficiency. The atmosphere at Plant P, in contrast, was well suited to the goal of improving plant capabilities, which it did very well. There was less differentiation between goals, since the functional specialists to a degree shared the product goals. Obviously, one danger in this form of organization is the potential attraction of specialist managers to total goals to the extent that they lose sight of their particular goals and become less effective in their jobs. But this was not a serious problem at Plant P. Moreover, there was considerable differentiation in time orientation and structure; some specialists worked at the routine and programmed tasks in operating the plant, while others concentrated on longer-term problems to improve manufacturing capability. The latter group was less constrained by formal procedures and job definitions, and this atmosphere was conducive to problem solving. The longer time orientation of some specialists, however, appeared to divert their attention from maintaining schedules and productivity. This was a contributing factor to Plant P’s less effective current performance. In spite of the higher degree of differentiation in these dimensions, Plant P managers were able to achieve the integration necessary to solve problems that hindered plant capability. Their shared goals and a common boss encouraged them to deal directly with each other and confront their conflicts. Given this pattern, it is not surprising that they felt very involved in their jobs. Also they were under stress because of their great involvement in their jobs. This stress could lead to dissatisfaction with their situation. Satisfaction for its own sake, however, may not be very important; there was no evidence of higher turnover of managers at Plant P. Obviously, in comparing the performance of these two plants operating with similar technologies and in the same market, we might predict that, because of its greater ability to improve plant capabilities, Plant P eventually will reach a performance level at least as high as Plant F’s. While this might occur in time, it should not obscure one important point: the functional organization seems to lead to better results in a situation where stable performance of a routine task is desired, while the product organization leads to better results in situations where the task is less predictable and requires innovative problem solving. Clues for ManagersHow can the manager concerned with the function versus product decision use these ideas to guide him in making the appropriate choice? The essential step is identifying the demands of the task confronting the organization. Is it a routine, repetitive task? Is it one where integration can be achieved by plan and conflict managed through the hierarchy? This was the way the task was implicitly defined at Plant F. If this is the nature of the task, or, to put it another way, if management is satisfied with this definition of the task, then the functional organization is quite appropriate. While it allows less differentiation in time orientation and structure, it does encourage differentiation in goal orientation. This combination is important for specialists to work effectively in their jobs. Perhaps even more important, the functional structure also seems to permit a degree of integration sufficient to get the organization’s work done. Much of this can be accomplished through paper systems and through the hardware of the production line itself. Conflict that comes up can more safely be dealt with through the management hierarchy, since the difficulties of resolving conflict are less acute. This is so because the tasks provide less opportunity for conflict and because the specialists have less differentiated viewpoints to overcome. This form of organization is less psychologically demanding for the individuals involved. On the other hand, if the task is of a problem-solving nature, or if management defines it this way, the product organization seems to be more appropriate. This is especially true where there is a need for tight integration among specialists. As illustrated at Plant P, the product organization form allows the greater differentiation in time orientation and structure that specialists need to attack problems. While encouraging identification with superordinate goals, this organizational form does allow enough differentiation in goals for specialists to make their contributions. Even more important, to identify with product ends and have a common boss encourages employees to deal constructively with conflict, communicate directly and openly with each other, and confront their differences, so they can collaborate effectively. Greater stress and less satisfaction for the individual may be unavoidable, but it is a small price to pay for the involvement that accompanies it. The manager’s problem in choosing between product and functional forms is complicated by the fact that in each organization there are routine tasks and tasks requiring problem solving, jobs requiring little interdependence among specialists and jobs requiring a great deal. Faced with these mixtures, many companies have adopted various compromises between product and functional bases. They include (in ascending order of structural complexity): 1. The use of cross-functional teams to facilitate integration. These teams provide some opportunity for communication and conflict resolution and also a degree of the common identification with product goals that characterizes the product organization. At the same time, they retain the differentiation provided by the functional organization. 2. The appointment of full-time integrators or coordinators around a product. These product managers or project managers encourage the functional specialists to become committed to product goals and help resolve conflicts between them. The specialists still retain their primary identification with their functions.6 3. The “matrix” or grid organization, which combines the product and functional forms by overlaying them. Some managers wear functional hats and are involved in the day-to-day, more routine activities. Naturally, they identify with functional goals. Others, wearing product or project hats, identify with total product goals and are more involved in the problem-solving activity required to cope with long-range issues and to achieve cross-functional coordination. These compromises are becoming popular because they enable companies to deal with multiple tasks simultaneously. But we do not propose them as a panacea, because they make sense only for those situations where the differentiation and integration required by the sum of all the tasks make a middle approach necessary. Further, the complexity of interpersonal plus organizational relationships in these forms and the ambiguity associated with them make them difficult to administer effectively and psychologically demanding on the persons involved. In our view, the only solution to the product versus function dilemma lies in analysis of the multiple tasks that must be performed, the differences between specialists, the integration that must be achieved, and the mechanisms and behavior required to resolve conflict and arrive at these states of differentiation and integration. This analysis provides the best hope of making a correct product or function choice or of arriving at some appropriate compromise solution. 1. For a historical study of the organizational structure of U.S. corporations, see Alfred D. Chandler, Jr., Strategy and Structure (Cambridge, The M.I.T. Press, 1962). 2. Luther Gulick, “Notes on the Theory of Organization,” in Papers on the Science of Administration, edited by Luther Gulick and Lyndall F. Urwick (New York, New York Institute of Public Administration, 1937), pp. 23–24. 3. Harold D. Koontz and C.J. O’Donnell, Principles of Management (New York, McGraw-Hill Book Company, Inc., 2nd edition, 1959), p. 111. 4. See Paul R. Lawrence and Jay W. Lorsch, Organization and Environment (Boston, Division of Research, Harvard Business School, 1967); and Eric J. Miller and A.K. Rice, Systems of Organization (London, Tavistock Publications, 1967). 5. Arthur H. Walker, Behavioral Consequences of Contrasting Patterns of Organization (Boston, Harvard Business School, unpublished doctoral dissertation, 1967). 6. See Paul R. Lawrence and Jay W. Lorsch, “New Management Job: The Integrator,” HBR November–December 1967, p. 142. A version of this article appeared in the November 1968 issue of Harvard Business Review. Which organizational structure is a combination of all structures?Matrix structure. In the matrix style of organizational structure, employees are divided into teams that report to two managers—a project or product manager along with a functional manager. In essence, a matrix structure is a combination of various organizational structures.
Which type of organization combines functional and divisional organizational structures?Matrix Structure
Matrix Structure is a combination of functional and divisional structures. This structure allows decentralized decision making, greater autonomy, more inter-departmental interactions, and thus greater productivity and innovation.
What type of organizational structure is the combination of line type and functional type?Type # 3.
Line and staff organization is a combination of functional and line structure. Line authority flows from top to bottom and the line executive is directly concerned with the accomplishment of primary objectives.
Which structure is the combination of project & functional Organisational structure?The matrix organization is the structure uniting these other organizational structures to give them balance. Usually, there are two chains of command, where project team members have two bosses or managers, a functional manager and a project manager.
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