Traditional Classical Organization

The traditional management structure has survived for more than two centuries. However, recent business developments, such as the rapid rate of change in technology and increased stockholder demands, have created strains on existing organizational forms. Fifty years ago companies could survive with only one or two product lines. The classical management organization, as shown in Figure 3-1, was satisfactory for control, and conflicts were minimal.7

However, with the passing of time, companies found that survival depended on multiple product lines (i.e., diversification) and vigorous integration of technology into the existing organization. As organizations grew and matured, managers found that company activities were not being integrated effectively, and that new conflicts were arising in the well-established formal and informal channels. Managers began searching for more innovative organizational forms that would alleviate these problems.

7. Many authors refer to classical organizations as pure functional organizations. This can be seen from Figure 3—1. Also note that the department level is below the division level. In some organizations these titles are reversed.

FIGURE 3-1. The traditional management structure.

Before a valid comparison can be made with the newer forms, the advantages and disadvantages of the traditional structure must be shown. Table 3-1 lists the advantages of the traditional organization. As seen in Figure 3-1, the general manager has all of the functional entities necessary to perform R&D or develop and manufacture a product. All activities are performed within the functional groups and are headed by a department (or, in some cases, a division) head. Each department maintains a strong concentration of technical expertise. Since all projects must flow through the functional departments, each project can benefit from the most advanced technology, thus making this organizational form well suited to mass production. Functional managers can hire a wide variety of specialists and provide them with easily definable paths for career progression.

TABLE 3-1. ADVANTAGES OF THE TRADITIONAL (CLASSICAL) ORGANIZATION

• Easier budgeting and cost control are possible.

• Better technical control is possible.

• Specialists can be grouped to share knowledge and responsibility.

• Personnel can be used on many different projects.

• All projects will benefit from the most advanced technology (better utilization of scarce personnel).

• Flexibility in the use of manpower.

• A broad manpower base to work with.

• Continuity in the functional disciplines; policies, procedures, and lines of responsibility are easily defined and understandable.

• Admits mass production activities within established specifications.

• Good control over personnel, since each employee has one and only one person to report to.

• Communication channels are vertical and well established.

• Quick reaction capability exists, but may be dependent upon the priorities of the functional managers.

TABLE 3-2. DISADVANTAGES OF THE TRADITIONAL (CLASSICAL) ORGANIZATION

• No one individual is directly responsible for the total project (i.e., no formal authority; committee solutions).

• Does not provide the project-oriented emphasis necessary to accomplish the project tasks.

• Coordination becomes complex, and additional lead time is required for approval of decisions.

• Decisions normally favor the strongest functional groups.

• No customer focal point.

• Response to customer needs is slow.

• Difficulty in pinpointing responsibility; this is the result of little or no direct project reporting, very little project-oriented planning, and no project authority.

• Motivation and innovation are decreased.

• Ideas tend to be functionally oriented with little regard for ongoing projects.

The functional managers maintain absolute control over the budget. They establish their own budgets, on approval from above, and specify requirements for additional personnel. Because the functional manager has manpower flexibility and a broad base from which to work, most projects are normally completed within cost.

Both the formal and informal organizations are well established, and levels of authority and responsibility are clearly defined. Because each person reports to only one individual, communication channels are well structured. If a structure has this many advantages, then why are we looking for other structures?

For each advantage, there is almost always a corresponding disadvantage (see Table 3-2). The majority of these disadvantages are related to the absence of a strong central authority or individual responsible for the total project. As a result, integration of activities that cross functional lines becomes difficult, and top-level executives must get involved with the daily routine. Conflicts occur as each functional group struggles for power. Ideas may remain functionally oriented with very little regard for ongoing projects, and the decision-making process will be slow and tedious.

Because there is no customer focal point, all communications must be channeled through upper-level management. Upper-level managers then act in a customer-relations capacity and refer all complex problems down through the vertical chain of command to the functional managers. The response to the customer's needs therefore becomes a slow and aggravating process.

Projects have a tendency to fall behind schedule in the classical organizational structure. Incredibly large lead times are required. Functional managers attend to those tasks that provide better benefits to themselves and their subordinates first.

With the growth of project management in the late 1960s, executives began to realize that many of the problems were the result of weaknesses in the traditional structure. William Goggin identified the problems that faced Dow Corning8:

Although Dow Corning was a healthy corporation in 1967, it showed difficulties that troubled many of us in top management. These symptoms were, and still are, common ones in

8. Reprinted by permission of Harvard Business Review. From William C. Goggin, "How the Multidimensional Structure Works at Dow Corning," Harvard Business Review, January-February 1974, p. 54. Copyright © 1973 by the Harvard Business School Publishing Corporation; all rights reserved.

U.S. business and have been described countless times in reports, audits, articles and speeches. Our symptoms took such form as:

• Executives did not have adequate financial information and control of their operations. Marketing managers, for example, did not know how much it cost to produce a product. Prices and margins were set by division managers.

• Cumbersome communications channels existed between key functions, especially manufacturing and marketing.

• In the face of stiffening competition, the corporation remained too internalized in its thinking and organizational structure. It was insufficiently oriented to the outside world.

• Lack of communications between divisions not only created the antithesis of a corporate team effort but also was wasteful of a precious resource—people.

• Long-range corporate planning was sporadic and superficial; this was leading to overstaffing, duplicated effort and inefficiency.

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