advantages and disadvantages of product organisational structure
As such, there is always a lack of proper coordination and control. This problem gets magnified when there is a tendency for the functional departments to become jealous of their prerogatives and fight to promote and preserve their specialisation rather than work towards unified project objectives. (vi) Functional organisation may prove unsatisfactory in handling diversified product lines and specialized projects. ii. Thus, one can see marketing, materials management, production, finance and accounting, personnel and maintenance departments in the functional design of a company engaged in manufacturing. Each division caters to different customers and has different types of competition. It is a set of planned relationships between groups of related functions and between physical factors and personnel required for the achievement of organisational goals. The benefits of structure based on customers are as follows: (i) Customer departmentation can focus on the special needs of different kinds of customers. Thus, communication is highly formalized. (ii) It may be difficult for an enterprise to adapt itself to changes in technology, demand, etc. Losing central control over each separate division. Teams and individuals can be very responsive. Secondly, there may be doubt over the reliability of the partners. In the present era of globalisation, strategic alliances and organization-customer-supplier links have become significant sources for developing competitive advantage. This may lead to decrease in profits even, when there is increase in sales. iii. Because overall objectives are set and defined by top management, the functional units must also be organized in that perspective. (v) Attempts to enforce uniform marketing and personnel policies in all the regional units may be contrary to the local needs of some units. In fact, most of the companies in information technology sector which are engaged in development of software for different purposes and for different customer segments have adopted this approach. Project organization, based on team concept, is the best means of getting the right things done right. Whenever these conditions exist, use of matrix structure is beneficial. It is a set of planned relationships between groups of related functions and between physical factors and personnel required for the achievement of organisational goals. If there are too many divisions, coordination becomes complex and difficult. Horizontal integration across functional departments often becomes difficult as the organization increases the number of geographic areas served and the range of goods and services provided. The product requires different type of efforts as compared to others in terms of marketing and/or production. Advantages and disadvantages using product departmentalization Product | Course Hero. It is employed where the unique characteristics of the product are of great significance and they require specialised machines and equipment and trained personnel. Nurturing negative rivalries among divisions. Upon completion of the project, these people may return to their original departments for further assignment. Cooperation and communication between departments and units may be poor. It represents traditional pyramid shaped organisation which is rigid in nature. A brief description of these forms is presented here. Virtual or Network Organisation 14. vi. Hierarchical structures are similar to the functional organizational structure and look much like pyramids of an organization. 7. 1. 1. This type of structure can have both advantages and disadvantages within the workplace. 6. (v) Excessive specialisation may destroy teamwork in the organisation. Therefore, he must coordinate the instructions received from two or even more bosses. In this system, an individual’s performance is appraised by his superior, peers, subordinates, and outsiders interacting with him. g. They are frequently responsible for acquiring any new training they might need. The structure of an organisation is generally shown on an organisation chart or a job-task pyramid. The top management can easily evaluate the performance of different product divisions and pay greater attention to the product line which is less profitable as compared to others. The major characteristics of a boundary less organization are as follows: i. 3. Functional design no doubt is the oldest and simplest form, but it is the most elementary type of design and often represents a base from which other types of design should evolve. The PBS, Product Breakdown Structure, is a hierarchical tree structure of a. For example – a large company having business throughout India may departmentalise its business by the major geographical regions (Example – Southern India, Northern India, Western India, Eastern India and Central India). They may compete with each other in certain areas. The disadvantage of this organizational approach is that it can be difficult to measure, and the organization may end up with multiple resources as different divisions try to be autonomous. ii. Forming SBUs may not be right for everyone business. 2. These networks are not fully reliable at all times. List of the Advantages of the Matrix Organizational Structure . Geographical or Territory Based Structure 11. Suitability: (a) This type of organisational structure is suitable where the size of operation is very … Vertical communication between superior and subordinate is the tendency in mechanistic structure. For example, GEC was earlier having nine product groups and forty-eight divisions which were reorganised into forty- three strategic business units, many of which crossed group, division, and profit centre lines. READ MORE on www.coursehero.com. This is the reason why more and more organizations have put emphasis on creating self-managing teams. Chance of differences in image and quality may occur across divisions. Through this way, the horizontal boundaries are also minimised. For example, each division has its own manufacturing, engineering, marketing, etc. Marketing managers in the corporate office may impl… For example, marketing department may be classified and grouped into advertising sales, market research, and so on. Type # 1. ii. i. (vi) Since each product manager is required to supervise the diverse functions of production, sales and finance with respect to a particular product line, there is a wide scope for the training and development of all round executives. Every organization should review these matrix organizational structure advantages and disadvantages to see if this approach might offer usefulness. iii. During his assignment to a project, he works under the coordinative command of the project manager and he may be called upon by his permanent superior to perform certain services needed in the project. iii. It is very useful where proximity to the local market can result in cost reduction. Cover the mechanistic, human relations and systems approaches I have chosen for my report three types of organisations: functional, divisional and matrix. Organization structure is the pattern in which various organizational activities are divided and assigned among positions, groups, departments, and divisions and the coordinating mechanism among these activities to achieve organizational objectives. Boundary Less Organisation 9. An organisation structure shows the authority and responsibility relationships between the various positions in the organisation by showing who reports to whom. It is suitable where environment is certain and more or less stable. It allows different organisations engaged in research and development, consultancy, manufacturing, financing, transportation, security etc. Departmentation by territories is more suitable for service industries such as transport, banks and insurance whose customers are spread throughout the country. 2. Some of the advantages and disadvantages of a Divisional organizational structure are as follows. The matrix structure, which is a combination of structures, has, therefore, become popular. Disclaimer 8. Cost and profit responsibilities may not be very clear in the matrix organisation. iv. In this form, regional offices are established as separate units. Each product line or product group gets concentrated attention. Virtual organisations have been created by large companies such as IBM, Apple, Ford etc. Almost all small scale industrial units or small organisations use simple structure. 2. Role of the group Vice President is often ambiguous. It utilises downward, upward and lateral communication networks for greater efficiency and quick decision-making. A team-based organization is comparatively more structured as compared to a boundary less organization. e. They prepare their own budgets and coordinate their work with other departments. For instance, the marketing department may be divided into four sections; namely, advertising, sales, customer service and marketing research. Since the product divisions are semi-autonomous, it permits growth and diversification of products and services. The major advantages of the product organisation grouping are the following: i. They offer day courses, evening courses and correspondence courses to meet the requirements of different types of students. In performance appraisal, 360-degree appraisal system is used. (ii) It focuses individual attention on each product line. Each division has a number of branches at different places covered by the division concerned. According to the contingent theorists, the structure of an organisation generally falls into one of two designs, namely: According to Bums and Stalker, “Mechanistic structure is one that is highly centralised and has the common elements of bureaucracy.” It lays emphasis on formal authority and communication patterns. In this article, we will discuss what a matrix organizational structure is as well as the advantages and disadvantages of this workplace approach. (ii) It allows giving balanced weightage to the basic functions on which the survival of a firm depends. iii. The design permits division of labour and encourages specialization. Divisional managers can concentrate on responsible area and can improve performance. ii. For instance, three separate divisions in food preparation appliances were merged in a single SBU to serve house ware market. Intel was not happy about that venture and decided not to participate in any such venture. Loyalty to the concern and obedience to superiors is highly insisted upon. The owner manager gets invested with a complete knowledge of his organisation and its business. First and foremost, matrix organizations provide both … It places responsibility for profit at the divisional level. This is useful for those organizations whose activities are geographically spread such as banking, transport, insurance, etc. May divert the owner from strategic decisions to day-to-day operating decisions. 8. i. SBU structure makes the task of planning and control by the corporate office more manageable. Product organisational structure does have certain disadvantages, including being difficult to scale and potentially: duplicating functions and resources, eg a different sales team for each division dispersing technical expertise across smaller units nurturing negative rivalries among divisions (iii) It introduces specialisation leading to higher productivity and economical operations. All the authority and decision-making is concentrated in the owner manager who often directly supervises all the activities. These departments may be created on the basis of their requirement in the organization and can be placed according to their role in strategy implementation. ii. It can be very expensive, due to requirement of functional specialists, duplication of staff services, facilities and personnel and better qualified divisional managers. This structure is market-oriented. Special knowledge and experience contribute to the common goals of the concern. A common theme of functional design proponents is the desirability of standardizing repetitive tasks and making them routine wherever possible. The important disadvantages of the matrix organisation are the following: i. Network structure is created around a central organisation that relies on other organisations to perform manufacturing, distribution, financing and other crucial business functions on a contract basis. Decentralization is today’s concept where decision making is not the prerogative of top management only. Meaning of Organisation Structure: Organisation structure is the pattern of organisational hierarchy based on authority responsibility relationship. 6. The concept and practice of boundary less organizations is quite new. Functional structure is helpful up to a certain limit of expansion and growth. Besides, the individual himself appraises his performance, known as self-appraisal, which is used along with 360-degree appraisal to arrive at the conclusion about the individual’s performance. (iv) Motivation of specialists may pose another problem for the project manager. iv. 1. Sharply focuses on accountability for performance. Corporate employees may duplicate the activities or efforts of divisional employees. iv. f. They usually order materials, keep inventories, and deal with suppliers. It is created to exploit fast changing opportunities and share skills and even facilitate access to global markets. Departmentation refers to the formal structure of the organisation composed of various departments and managerial positions and their relationships to each other. Departments are replaced by self-managing teams. ii. Computer networks are susceptible to attack from network hackers, viruses, and other types of mischiefs either for making money or just for fun. Some companies can do something very well but struggle with most others. Organic structure represents low horizontal differentiation, low formalization, free communication, and participation by low-level members in decision-making. It increases problems of central management control. In a turbulent environment, such organization is preferable for planning, implementing and control of costs projects. Functional Structure 3. Lack of teamwork and reduced flexibility may cause conflicts between departments and units. Therefore, organizational members do not find these very comfortable in comparison to traditional hierarchical systems. Such departments may be personnel, industrial relations, accounting, research and development, general administration, and so on. Provides greater decentralisation of authority. Managers can concentrate on exceptions to eliminate any gaps or overlaps. It deemphasises chain of control, span of control, and rigid departmentation. For example, small firms tend to be functionally structured, big firms with multiple, products or services, use SBU structure or matrix structure. 8. iv. However, with advances in information technology, the network structure is gaining popularity. The core of the network structure is the central organisation which coordinates relationships and activities with the other organisations in the network. Each regional office has independent functional departments to realise its objectives. It ensures quick delivery of products to customers in different areas, and intensive exploitation of local markets. Here is a look at the advantages and disadvantages that come with this type of structure. For instance, in an industrial enterprise, the major functions like production, finance, marketing and personnel may be grouped into different departments. Maintenance of economical central services is sometimes very difficult. ii. You can work on lots of different things, sometimes in parallel—although this point can be argued as a disadvantage as well. Territorial departmentation has the following advantages: (i) It leads to the benefits of local operations. It is significant to note that the organisation structure is directly related to the attainment of the organisational objectives. Personnel are drawn from their respective functional departments. The products are often unrelated and require different emphasis on different functions. d. They often create their own schedules and review their performance as a group. Report a Violation 11. 5. None of them is effective in certain situations. Creativity is developedthrough interaction with various specialists. But if a company is providing services in different regions, it would follow geographical or territory based structure. Though some of these problems may be overcome by installing appropriate security devices, computer networks do not remain fully safe. Activities related to a function are grouped in a single unit with a view to give a well-defined direction to the whole group. ii. In this form, each major product or product line is organized as a separate unit. Team members are familiar with each other since they work in the same area. But where it is required to handle multiple products, functional organisation may prove to be insufficient. … This avoids the expenses of renting new offices for the venture and costly travel time between companies. Number of employees in such organizations tends to be quite low. For instance, two divisions may have their separate marketing research wings or public relations departments. From there, the structure may shift to an advisory board or staff director, who oversees various department directors. This structure presents increased problems of top management control. These structures may be adopted on either/or basis or in hybrid form, that is, a part of the structure may be in one form while other part may be in another form which is quite common with large organizations. Geographical or Territory Based Structure, Essays, Research Papers and Articles on Business Management, Organisational Structure: Functional Structure and Divisional Structure, Designing the Project Organisation Structure: 2 Forms, Matrix Organisation: Concept, Advantages and Limitations, Types of Organisation: Advantages & Disadvantages | Functions | Management, International Human Resource Management: Meaning, Need, Challenges and Issues, Advantages and Disadvantages of Franchising, Types and Classification of Organisation Structure (with Advantages and Disadvantages). The project staff is separate from and independent of the functional departments. Organizations will typically start the structure process by clarifying what it will take to do the work, meet goals, grow sales, etc. Thus, matrix structure not only employs a multiple command but also related support mechanism and associated organizational culture and behaviour. c. They set their own goals and inspect their own work. Divisional Structure Meaning. The advantages of product based structure are as follows: (i) Product departmentation can reduce the coordination problems which are created under functional departmentation. Further, many disadvantages can be overcome if suitable steps are taken well in advance. For instance, if an undertaking is in production line, the dominant element in its organisation chart would be manufacturing and assembling. Under this, customers are the guide for grouping the activities. However, management scholars have divided opinions over the effectiveness of virtual organizations because of the kind of trust that is required in creating such organizations. Copyright 10. The main disadvantages of the territorial structure are the following: i. There are only line… Different departments are a force to coordinate across all the functions. In addition to vertical communication, lateral and horizontal communications are quite common. The major advantages of the functional type of organisation are the following: i. Nature and Characteristics of Organisation Structure 3. This is also known as territorial sales force structure, and it means that the organization assigns each sales rep to a certain geographic area. It is a set of planned relationships between groups of related functions and between physical factors and personnel required for the achievement of organisational goals. iii. iii. Another disadvantage of functional organization structure is that these functional groups may not be able to communicate more often which decreases flexibility and innovation. It could result in interdepartmental conflicts or lack of coordination between the functions. vii. Functional design fosters a limited point of view that focuses on a narrow set of tasks. The activities or functions of all these departments are coordinated by the chief executive of the organization. It does not encourage development of future managers. Apart from basic and secondary functions, departments are also created for supporting activities to take the advantages of specialisation and to support the basic and secondary activities. Matrix structure has been evolved to overcome the limitations of traditional organization structures. In a functional structure, activities are grouped and departments are created on the basis of specified functions to be performed. At the same time, divisionalisation involves certain negative points in the form of being expensive, presenting control and coordination problems, lack of suitable personnel for heading divisions, and lack of specialisation of activities. 7. Matrix organizational structures have several advantages for both the organization and the employee. In matrix structure, a project manager is appointed to coordinate the activities of the project. It enables an organisation to quickly and effectively respond to changes in regional conditions. Divisional structure is built around business units. The operating divisions are relatively independent and consist of products and services that are different from those of the other divisions. (v) It has been found to fit a number of widely-varying situations such as product development, installation of a new plant, etc. Management, Organisation, Organisation Structure, Types of Organisation Structure. Let us assume that a typical company has two divisions for metal products and cement respectively. Mechanistic structure is characterised by a greater degree of horizontal differentiation, high formalization (i.e., formal relations and communication), mostly downward communication, and little participation by low-level members in decision-making. For instance, Life Insurance Corporation of India (LIC) has semi-autonomous divisions in different regions of the country. 3. The different organisational structures described above have their own advantages and disadvantages. First, team-based organization requires a work culture that is quite different from traditional hierarchy-based organization.