Product and Functional Organisation

In mechanistic organization, the organization sub-systems will ideally take either the product form or the functional form. In the functional organization the major departments are clustered around similar work functions and responsibilities, such as accounting, purchasing, production and personnel. These subunits are very similar to the organizations subsystem. Managers and workers are allocated to units that are responsible for similar tasks. Most of the staff in departments of functional organizations will have training and work experience that maybe alike. This results in units with high levels of specialization in the functional activity such as marketing. As the work of each unit is so specialized, the functional form offers a big chance for increasing operating efficiency, especially of the production unit. Economics of scale can be more easily accomplished because all the production activities are in one department. The similarity of background should also lead to smoother communication within the functional departments, because the individual will have a common frame of reference. E.g.: the “jargon” will be more easily comprehended by the department members. Consequently, there may be communication problems between groups because of the dissimilarity in their orientation. Co-ordinating units are one of the core problems of the functional organization. For instance, the marketing division would like to have a ready supply of both brands on hand at all times to meet customer’s demand. Conversely, the manufacturing units may want to produce only one brand at a time and have very long production runs to keep production costs at a minimum. Each department’s interest is best answered by different goals (either long production runs or high inventories).

In product departmentation, departments are shaped around different products or services. Each division is accountable for manufacturing and selling its own product and each may be very autonomous. Within each product division, there is significant functional departmentation. The head of the division will have a production executive, a marketing executive, and other executives in charge of functional units within the product division. It is doubtful that any of them will interact often with his or her counterpart departments. The product organization makes simpler some problems but it creates other. E.g. it is easier to develop control system because production and selling costs can be assigned to the different products, which are almost totally the responsibility of a single unit. On the other hand, it is generally believed that costs are elevated for a product organization because it does not tender the same economics of scale connected with grouping similar activities into functional units. Though organizations are usually combination of two or more types of departmentation, a firm must decide on most important form of departmental organization. Many factors must be measured that will affect the decisions. In the final analysis, the choice of one form over the other usually highlights the values of organization, key decisions markers. If they believe that the firm’s goal can benefit from accentuating customer or client services, then the product form will probably be most efficient. If internal efficiency and control is more important, then the functional form in more likely to be effective.