successive level
to report
staff position
holder
line authority ( )
coal-mining business
are concerned /
permanent battles
to encourage ,
range of products
operating division
to pass on responsibility
to deal with
temporary
entire project ( )
are split up
Most organizations have a hierarchical or pyramidal structure, with one person or a group of people at the top, and an increasing number of people below them at each successive level. There is a clear line or chain of command running down the pyramid. All the people in the organization know what decisions they are able to make, who their superior (or boss) is (to whom they report), and who their subordinates are (to whom they can give instructions).
Some people in an organization have colleagues who help them: for example, there might be an Assistant to the Marketing Manager. This is known as a staff position: its holder has no line authority. Yet the activities of most companies are too complicated to be organized in a single hierarchy. Shortly before the First World War, the French industrialist Henry Fayol organized his coal-mining business according to the functions that it had to carry out. He invented functional organization. Today, most large manufacturing organizations have a functional structure, including production, finance, marketing, sales, personnel or staff departments and others. This means, for example, that the production and marketing departments cannot take financial decisions without consulting the finance department.
Functional organization is efficient, but there are two standard criticisms. Firstly, people are usually more concerned with the success of their department than that of the company, so there are permanent battles between, for example, finance and marketing, or marketing and production, which have different goals. Secondly, separating functions is unlikely to encourage innovation.
Yet for a large organization manufacturing a range of products, having one production department is generally inefficient. So most large companies are decentralized, following the model of Alfred Sloan, who divided General Motors into separate operating divisions in 1920. Each division had its own engineering, production and sales departments, made a different category of car, and was expected to make a profit.
The main problem of hierarchies is that people at lower levels are unable to make important decisions, but have to pass on responsibility to their boss. One solution to this is matrix management, in which people report to more than one superior. For example, a product manager might be able to deal directly with managers responsible for a certain market segment and for a geographical region, as well as the managers responsible for the traditional functions of finance, sales and production. This is one way of keeping authority at lower levels, but it is not necessarily a very efficient one.
Another possibility is to have autonomous, temporary groups or teams that are responsible for an entire project, and are split up as soon as it is successfully completed. Teams are often not very good for decision-making, and they have risk of relational problems, unless they are small and have a lot of self-discipline. In fact they still need a leader, on whom their success probably depends.
