Page 31 - Managing Change in Organizations

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Chapter 2 ■ Organization structures: choice and leadership
The functional structure

Growth often leads to the development of a functional structure. Here similar activ-
ities are grouped into departments: personnel, marketing, finance, operations and
so on. Coordination is achieved through a board of directors or management com-
mittee, overseen by a managing director or general manager. If the organization is
not too large the functional structure provides three main advantages:
1 It allows for the development of particular kinds of expertise, engineering,
technology, finance, personnel, etc.
2 It provides career paths for professional staff who work with and then manage
people from a similar background.
3 It provides for the effective utilization of personnel across various departments.
However, further growth, geographical dispersion or product/service diversifica-
tion can create pressures on this form of organizational structure.

The product structure

Managers operating within a functional structure are unlikely to devote the nec-
essary time and commitment to each of a range of products/services or markets.
It will be difficult to establish criteria by which priorities are to be established.
Individuals need to be accountable for products/services or markets if they are to
attract appropriate resources. The functional structure provides us with a good
basis for achieving internal efficiency of functions and coordination. It does not
provide us with a good basis for product/service/market growth in a competitive
environment. In practice, it turns out to be difficult to allocate resources to the
different products/services on any rational basis.
In the product structure, activity is grouped around products/services/markets.
Each group will have its own specialists, at least from disciplines which are best
organized at product level (say, for example, engineering and marketing). Typically,
finance and personnel may remain functionally organized, reporting directly to
the management committee or board, alongside the product groups. This struc-
ture brings with it two key advantages:

1 The product groups are better equipped to respond to market demands for growth
or change to products/services. They do not need to compete for resources unless
the rate of growth is such that the resources allocated to them must be expanded.
2 The work of the various specialists (engineers, marketing) becomes directly
related to the market. The likelihood is that in this structure people can and
will become ‘closer to the customer’.
However, growth or decline in a product/service can be difficult to handle. The
former leads to a demand for more resources, the latter for the reassignment of
staff between product groups.

The divisional structure

Further growth can create pressure on senior management, who will become
‘swamped’ by day-to-day matters. This means that either senior management tend

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