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 position in the marketplace, as well as increased stockholder demands, have created strains on existing organizational forms. Fifty years ago companies could survive with only one or perhaps two product lines. The classical management organization, as shown in Figure 3-1, was found to be satisfactory for control, and conflicts were at a minimum.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 the integration and conflict problems.
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 beneath him all of the functional entities necessary to either 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
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.
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.
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.
TABLE 3-1. ADVANTAGES OF THE CLASSICAL TRADITIONAL 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).
• It provides flexibility in the use of manpower.
• It provides a broad manpower base to work with.
• It provides continuity in the functional disciplines; policies, procedures, and lines of responsibility are easily defined and understandable.
• It readily admits mass production activities within established specifications.
• It provides 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.
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. Table 3-2 lists the disadvantages of the traditional structure. The majority of these disadvantages are related to the fact that there is no strong central authority or individual responsible for the total project. As a result, integration of activities that cross functional lines becomes a difficult chore, and top-level executives must get involved with the daily routine. Conflicts occur as each functional group struggles for power. The strongest functional group dominates the decision-making process. Functional managers tend to favor what is best for their functional groups rather than what is best for the project. Many times, ideas will remain functionally oriented with very little regard for ongoing projects. In addition, the decision-making process is slow and tedious.
Because there exists 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 because the information must be filtered through several layers of management. If problem-solving and coordination are required to cross functional lines, then additional lead time is required for the approval of decisions. All trade-off analyses must be accomplished through committees chaired by upper-level management.
Projects have a tendency to fall behind schedule in the classical organizational structure. Completing all projects and tasks on time, with a high degree of quality and efficient use of available resources, is all but impossible without continuous involvement of top-level management. Incredibly large lead times are required. Functional managers attend to those tasks that provide better benefits to themselves and their subordinates first. Priorities may be dictated by requirements of the informal as well as formal departmental structure.
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).
• It 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.
• There is no customer focal point.
• Response to customer needs is slow.
• There is 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.
With the growth of project management in the late 1960s, executives began to realize that many of the problems that had surfaced to the executive levels of management were the result of weaknesses in the traditional structure. William Goggin identified the problems that faced Dow Corning:8
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 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 over-staffing, duplicated effort and inefficiency.
Executive analyses of the traditional structure, identified by Carlisle, are:9
• Functional organizations tend to emphasize the separate functional elements at the expense of the whole organization.
• Under functional departmentation there is no group that effectively integrates the various functions of an organization and monitors them from the "big picture standpoint."
• Functional organizations do not tend to develop "general managers."
• Functional organizations emphasize functional relationships based on the vertical organizational hierarchy.
• Functional organizations tend to fragment other management processes.
• Functional organizations develop a strong resistance to change.
• Functional segregation through the formal organization process encourages conflict among the various functions.
• The emphasis on the various operating functions focuses attention on the internal aspects and relations of the company to the detriment of its external relations.
• Functional organizations tend to be closed systems.
8 William C. Goggin, "How the Multidimensional Structure Works at Dow Corning," Harvard Business Review, January-February 1974, p.54. Copyright © 1973 by the President and Fellows of Harvard College. All rights reserved.
9 Howard M. Carlisle, "Are Functional Organizations Becoming Obsolete?" Reprinted, by permission of the publisher, from Management Review (pp. 4-6), January/1969 © 1969. American Management Association, New York. All rights reserved.
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