The weakness of Functional organization

Even a proper functional organization by stage of process does not adequately serve the structural requirements of the business. It makes it difficult to focus on business performance. Every functional manager considers his function the most important one and tries to build it up and is prone to subordinate the welfare of the other functions, if not of the entire business. There is no real remedy against this tendency in the functional organization. The lust for overdoing on the part of each function is a result of the laudable desire of each manager to do a good job.

Functional organization of necessity puts the major emphasis on a specialty, and on a man’s acquiring the knowledge and competence that pertains to it. Yet the functional specialist may become narrow in his vision, his skills and his loyalties as to be totally unfit for general management.

A further weakness is the difficulty of setting objectives in the functional pattern and of measuring the results of functional work. For the function as such is concerned with a part of the business, not with its whole. Its objectives will therefore tend to be set in terms of ‘professionals standards’ rather than in terms of the success of the business. They will tend to direct the attention and efforts of managers away from business success rather than towards it. It will tend too often to emphasize and to reward the wrong things.

Because of this, functional organization leads to levels upon levels of management. It can rarely train or test a man in business performance, and almost never in a position where he has full responsibility for results. And, largely because it needs many levels, it tends to erode the meaning of each job and to make it appear nothing but as steppingstone to a promotion.

Federal Decentralization

This is the reason why federal decentralization that is, organization by autonomous product business the norm for the larger company. In the last ten years it has been adopted or fully developed by Ford and Chrysler (General Motors has had it since 1923 or so), General Electric and Westinghouse, all the major chemical companies (except DuPont who had developed it by 1920), most of the large oil companies, the largest insurance companies and so forth. And the principle is being expounded in articles and speeches, in management magazines and management meetings so that by now the phrase at least must be familiar to every American manager.

These are the main reasons for its emergence as the dominant structural principle of modern large business enterprise:

It focuses the vision and efforts of managers directly on business performance and business results.

Because of this the danger of self-deception, of concentrating on the old and easy rather on the new and coming, or of allowing unprofitable lines to be carried on the backs of the profitable ones, is much lessened. The facts do not stay hidden under the rug of “overhead” or of “total sales figures.”

The advantages are fully as great in respect to management organization. Management by objectives becomes fully effective. The manager of the unit knows better than any one else how he is doing, and needs no one to tell him. Hence the number of people or units under one manager no longer is limited by the span of control; it is limited only by the much wider span of managerial responsibility.

A Sears Roebuck vice-president may have a hundred stores under him each an autonomous unit, responsible for marketing and for profits. And each store manager may have thirty section managers under him, each running his own autonomous unit and also responsible for marketing and profitability goals,. As a result, there are only two levels in Sears between the lowest management job, section manager in a store, and the president: the store manager and the regional vice-president.

Right after the war Sears hired a large number of young men. They were divided arbitrarily. About one third were put into the large stores, one third into the small stores, one third into the mail-order business. Five years later the best of the young men in the large stores were getting to be section managers; and the best of the young men in the small stores were getting ready to be managers of small stores themselves. In the mail-order houses there were actually more openings during these years. But mail order has always been organized by functional specialization. The best of the young men placed there had left the company; the others were five years later were still clerks punching a time clock.