Product Grouping vs Function Grouping

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Good morning, ladies and gentlemen! Today we’ll discuss the problem that
often appears towards the manager. This is a problem of organizational
choice or how to group product activities by product or by function. In
other words, should all specialists in a given function be grouped under
a common boss, regardless of differences in products they are involved
in, or should the various functional specialists working on a single
product be grouped together under the same superior.

But the aim of our presentation is not to persuade you that only one way
is the right and only this way should be used in each organization.
We’ll try to show you that each reorganization is temporary and manager
always have to find some middle positions between that two ways of
organization, he have to find some compromise. Another point I’d like to
underline that all our presentation will be told from the behavioral
scientist’s viewpoint.

So, during our presentation we’ll offer you some elements to consider,
then we’ll talk about behaviorist’s findings on that matter and consider
the example with two plants. After that we’ll summarize all our
presentation and maybe give some useful advice for managers.

If that clear let me begin our presentation.

First of all we have to understand what makes those issues so difficult.
It is useful to review all the criteria often relied on during making
decisions. Typically, managers have used technical and economic
criteria. For example, they may ask themselves “Which choice will
minimize payroll costs?” or “Which will best utilize equipment and
specialists. This approach shows us the real logic of traditional
management and has strong support from classical school of
organizational theory. The classical school theorists suggested that the
manager should make the choice based on the following three criteria:

Which approach permits maximum use of special technical knowledge?

Which provides the most efficient utilization of machinery and

Which provides the best hope of obtaining the required control and

As you can see there is nothing wrong with these criteria, but they fail
to recognize the complex set of trade-offs involved in these decisions,
cause managers often make changes that produce unanticipated results and
even reduce the effectiveness of organization. For example there is an
organization which few years ago shifted from a product basis to a
functional basis. The reason was that it would lead to improved control
of production costs and efficiencies in production and marketing. While
the organization did accomplished these aims, it found itself less able
to obtain coordination among its local sales and production units.

This example pinpoints the major trade-off that the

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