Organization structure refers to the method which the organization utilizes to distribute its workers and jobs across the organization so that the tasks of the organization can be performed and the goals of the organization be achieved. Therefore, there exists a number of such structures e.g. divisional, multidivisional, matrix or functional structure. This paper evaluates the usefulness of functional and multidivisional structures. Gareth Jones (2007) defined the organizational structure as the total number of ways whereby the workforce of the organization is distributed into different tasks and their coordination then is realized among such tasks. Adner & Levinthal (2001) observed that the way in which organization structure evolves is as a result of the shift in competition from innovation in product to innovation in process. This change, as the market for the products or service of the firm grows, causes the structure of the firm to grow as well and may therefore turn from functional to multidivisional.
Utterback & Abernathy (1975) observed that after an organization is formed it compete with other organizations in the market on the basis of its differentiation strategy. They start off on the basis of product differentiation and as they grow further, they change their focus from product alone to cost differentiation strategy as well as economies of scale. This leads them to invest more in the manufacturing process and other processes to make their product stand out as a specialized one. Tushman & Anderson (1986) observed that this process may not be uniform every time. Some technological or technical discontinuity might cause this process to halt and thus start it all over again. They further observed that some companies may also focus on process innovation to stand out against competitors e.g. Toyota. However, other companies might like to continue on the basis of differentiation strategy e.g. BMW.
Therefore, the lifecycle model represents a significant framework for organizations to devise their strategies and the processes they need to focus on in various competitive environments (Oster, 1994; Porter, 1980) Utterback & Abernathy (1975) also defined the ways whereby the evolution process of the organization shapes up the strategies of the firms. Gort & Klepper (1982) gave effect to lifecycle model of industries by employing microeconomics supply side rationales as well as evolutionary economics. They nevertheless derived the same results. They too observed that organizations evolved first on the basis of product differentiation and on the basis of functional model and gradually shifted towards the increase in the number of firms under their auspices. When they reach at the peak they have a number of firms under their umbrella which require for a more in-depth management causing them to shift towards divisional management.
This stage is called the maturity stage of the organization. This is the stage when the firm is stable from low level to the top (Utterback & Suarez, 1993). Lifecycle theories all agree that organizations start on the basis of competitive strategies and as they evolve their structure experiences change. The early stage of any organization witnesses product innovation. The organizations usually focus on bringing innovation in a product that they launch in the market to distinguish it from the rest. The product is designed as per the latest needs of the consumer but existing needs are also satisfied by the product. Utterback & Abernathy, 1975 They then gave the examples of the product innovation in market by organizations i.e. the new products which were launched in market to compete with existing products on the basis of innovation and meeting the latest needs of the consumers e.g. AC systems were introduced to compete with DC systems and internal combustion engines were introduced to compete with steam engines.
Utterback & Abernathy (1978) observed that in the initial stages when the product is being launched by the new organization, that organization is usually of small structure and the aim of such organization is to respond in a fast paced manner to the demands of the customers. However, when the firms get to the stage of maturity, they focus on the improvement of the process along with that of the product. They then involve the employment of latest technology and produce a dominant product e.g. AC systems came up as a dominant product compared to DC systems and internal combustion engines came up as dominant products as compared to steam engines. This transition from product innovation to innovation in process along with the product causes most of the organizations to change their structures so that new capabilities can be acquired by them. Talha (2005) described functional structure of the organization as the one which involves the people being grouped together in a tight group to perform same activities or utilize same technologies and in the same department.
This is therefore usually the structure of smaller organizations. This structure has its own weaknesses and strengths. Jones (2007) observed that functional structure represents that design of the organizational structure whereby the people involved possess common expertise, skills and resources. The aim of organizations structured in this manner is to enhance their effectiveness so that their goals can be achieved by them. Jones (2007) said that the main advantage of this type of structure is that people work closely together so they work in a team like manner and have the opportunity to learn from each other. They tend to be more specialized over time as well as productive. Since they possess same expertise and skills therefore they can also supervise each other conveniently. This enhances the effectiveness of the organization. Brews (2004) observed that functional structures first started to appear in 20th century when the industrial age started to emerge.
The main concern for the management in that age was the efficiency of the organizations. The functional structure involved few managers which were at top while at bottom there were people. These people were organized as per the activity they used to perform. Authority was descended onto from top to bottom. However, despite the advantages enunciated above, there were also problems related to the functional structure. These were mostly two fold i.e. they involved communication and control problems. With the growth of the organizations and with the growth in its units and people, it became difficult to communicate since people and units became distant from each other in the same organization and it became difficult to measure the capability of the groups with few managers. It also gave rise to location problem i.e. it became difficult to locate every unit at one place while on the other hand if they were located at different locations it again gave rise to communication problems.
(Jones, 2007) The control problem related to the management of wider number of people and units within the organization. It became difficult to control a large number of people possessing different skills as per the needs of the organization by same little number of managers. It also became difficult to gauge the problems and demands of the customers as the organizations grew as managers were busy in finding ways to coordinate with widespread units/people while having little time to pay heed to customer queries, etc. Therefore, as organizations grew they started to get divided in various divisions with each division having its own management system. Each division then could have its own functional management system. This is what is referred to as multidivisional structure. (Jones, 2007) Such multidivisional structures arose due to different types of people working in the same organization, having had the need to establish different units in the organization to meet customer demands and develop innovative products, increased integration and increased vertical differentiation.
In such instances organizations usually gave effect to multi divisional structure to meet the management needs of the organization. The focus of the multi divisional structure is to create small divisions within the organization with each division having its own management. Robbins (2009) observed that in multi divisional structures, each unit of the organization usually has its own management which is structured on a functional pattern. He believed that multidivisional structure is viable for those organizations whereby the same product requires different parts to be assembled to form one product and that such product is sold in various markets. Jones (2007) said that at the heart of the multi divisional structure is the corporate headquarter which is entrusted with overseeing the managers of each division of the organization.
A number of Fortune 500 companies e.g. Nestle, General Motors, Pepsi Co and Coca Cola have multi divisional structures. Dessler (2004) observed that the main feature of the multi divisional structure is that the organization is “departmentalized”. He said when an organization grows successfully and a number of other brands also comes under its auspices e.g. as there are a number of brands acquired by Coca Cola over time, then it has to maintain different units for different purposes. For example, the unit entrusted with the responsibility to find marketing channels in USA may lack the competency to find marketing channels in Europe or China in which instance it would be a separate unit having such responsibilities. Each region would thus have its own unit but of the same organization and each unit may have its own management structure as well.
Ireland (et al. 2011) observed that functional structure is relevant and appropriate for smaller organizations and for those organizations which have just begun their operations. They gave example of Wal-Mart Stores Inc. that the store started off with functional structure in the beginning and progressed further. Moreover, Ireland (et al. 2011) also argued that one cannot apply the same structure to each organization. It is the circumstances of each company and organization which dictate the need for the relevant structure. Thus, organizational structure represents the fashion in which organization organizes itself from top to bottom. It may be functional in the starting when the organization has just begun its operation while it may be multidivisional when the organization is huge in terms of its operations, products and services such as Fortune 500 companies.
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