Why do companies implement functional structures?

Functional structure:

An organization that structures work by grouping similar and related occupational activities

We introduced functional departmentalization a few pages ago. The functional structure merely expands the functional orientation to make it the dominant form for the entire organization. As displayed in Exhibit management can choose to organize its structure by grouping similar and related occupational specialties. For example, Revlon Inc., is organized around the functions of operations, finance, human resources, and product research and development. The strength of the functional structure lies in the advantages that accrue from work specialization. Putting like specialties together results in economies of scale, minimizes duplication of personnel and equipment and makes employees comfortable and satisfied because it gives them the opportunity to talk the same language as their peers. The most obvious weakness of the functional structure is that the organization frequently loses sight of its best interests in the pursuit of functional goals. No one function is totally responsible for results, so members within individual functions become insulated and have little understanding of what people in other functions are doing.

Function Structure:

Plant Manager>>

Manager Engineering > Manager Accounting > Manager Information Systems > Manager Human Resources> Managers Purchasing

What is the Divisional Structure?

Divisional structure>>

An organization made up of self contained units or divisions.

The divisional structure is an organization deign made up of self contained units or divisions. Hindustan Levers and Philips India have implemented such a structure. Building on product departmentalization (see exhibit below), each division is generally autonomous with a division manager responsible for performance and holding complete strategic and operational decision making authority.

Exhibit Divisional Structure:

President > Vice President Fuels > Vice President Lubricants and Waxes > Vice President Chemicals

Vice President Fuels > Marketing > Planning > Planning and Economies > Supply and Distribution > Manufacturing

Vice President Lubricants and Waxes > Marketing > Planning and Economics > Supply and Distribution > Manufacturing

Vice President Chemicals > Marketing > Planning and Economics > Supply and Distribution > Manufacturing

In most divisional structures central head quarters provides support services – such as financial and legal services to the divisions. Of course, the headquarters also act as an external overseas to coordinate and control the various divisions. Divisions are, therefore, autonomous within given parameters. The chief advantage of the divisional structure is that it focuses on results. Division managers have full responsibility for a product or service. The divisional structure also frees the headquarters staff from being concerned with day to day operating details so that they can pay attention to long term and strategic planning. The major disadvantage of the divisional structure is duplication of activities and resources. Each division for instance, may have a marketing research department. In the absence of autonomous divisions, all of the organization’s marketing research might be centralized and done for a fraction of the cost that division requires. Thus, the divisional form’s duplication of functions increases the organization’s costs and reduces efficiency.

Can an Organization Design capture the advantages of bureaucracies while eliminating their disadvantages?

Matrix structure:

An organization in which specialists from functional departments are assigned to work on one or more projects led by a project manager

The functional structure offers the advantages that accrue from specialization. The divisional structure has a greater focus on results but suffers from duplication of activities and resources. Does any structure combine the advantages of functional specialization with the focus and accountability that product departmentalization provides? Yes, and it’s called the matrix structure.

Exhibit illustrates the matrix structures of an aerospace firm. Notice that along the top of the figure are the familiar functions of engineering, accounting, human resources, manufacturing and so forth. Along the vertical dimension, however there various projects on which the aerospace firm is currently working. Each program is directed by a manager who staffs his or her project with people from the functional departments. The addition of this vertical dimension to the traditional horizontal functional departmental, in effect weaves together elements of function and product departmentalization – hence, the term matrix.

The unique characteristic of the matrix is that employees in this structure have at least two bosses: their functional departmental manager and their product or project managers. Project managers have authority over the functional members who are part of that manager’s project team, but authority is shared between the two managers. Typically the project manager is given authority over project employees relatives to the project’s goals, but decisions such as promotions, salary recommendations, and annual reviews remain the functional manager’s responsibility. To work effectively, project and functional managers must communicate regularly and coordinate the demands on employees and resolve conflicts together.

The primary strength of the matrix is that it can facilitate coordination of a multiple set of complex and interdependent projects while still retaining the economies that result from keeping functional specialists grouped together. The major disadvantages of the matrix are the confusion it creates and its propensity to foster power struggles. When you dispense with the chain of command principle, you significantly increase ambiguity. Confusion can arise over who reports to whom. The confusion and ambiguity in turn, are what plant the seeds of power struggles.