Product Organizational Structure

By: Joe Iaconis

What do Procter & Gamble, Boeing, Hewlett-Packard, and Sony all have in common?  If you guessed that they were companies with well-developed product structures, then you were correct! As defined in Organizational Behavior by Colquitt, Lepine, and Wesson, “Product structures group business units around different products that the company produces.”   Product lines mainly consist of product lines within one organization.  Sticking with the Sony example, the common consumer knows that Sony is an electronics brand.  Within electronics though, Sony sells video game consoles, digital cameras, televisions, blu-ray players, cell phones, and laptops.  Sony saturated the product market of electronics by creating a variety of product lines.  Sure Sony as multiple variations of video game consoles, televisions, laptops etc. but they were able to narrow their products down into different product lines and structure them more.  By doing this, they can continue to run every day operations as a company without feeling overwhelmed.  While making every product line a division, Sony is now able to assign them with the responsibilities of manufacturing, marketing, and separate research and development for the product division.  Organizational Behavior also states, “Shifting the sales force into three different product-based divisions allows the sales people to concentrate on a core set of products [as well as reinvigorating the sales force]” (Colquitt, Lepine & Wesson, 2011).

The one main concern about product structures within organizations is the level or similarity between the two products.  Sure a digital camera is completely different compared to a video game console; a digital camera and digital video camera are very similar and should not be split up into two separate product lines.  Organizational Behavior gives two fantastic examples in my opinion. The first example is the product structures of Mattel.  After CEO Robert Eckert took over, he decided to analyze the product lines and noticed that Mattel had four different product lines/ product structures.  Those product structures consisted of: Boy’s Brands, Girl’s Brands, American Girl line, and Fisher-Price.  Most would assume that those structures are all fair and organized well.  Eckert found that the brands were essentially competing against one another.  Rather than seeing all these different brands killing each other off through a survival of the fittest, the CEO decided to combine three of the four divisions and pushed a “One Mattel” viewpoint.  The second example discussed in the book was with Fiat-Chrysler.  The companies CEO Sergio Marchionne recognized that the brands Chrysler has control over (Dodge, Jeep, and Chrysler) were all competing against one another for the consumer.  Rather than combining the divisions like Mattel did in the previous example, Marchionne hopes that the competition will help all three brands and possibly turn the entire Fiat-Chrysler organization around.

By doing some research I discovered a new term involving Organizational Structure and that term is structural inertia.  Accounting to the Journal of Economics & Management Strategy, “It is well known from some empirical studies that firms exhibit structural inertia, that is their organizational structure is rarely altered unless they experience a crisis that affects their ability to survive” (Hur, and Riyanto, 2012).  Going back to the previous examples with Mattel and Ford Motor Company, it seems that structural inertia may not be as rare as the article states.  In my opinion, I would change the structure as the market for my organizations product changed.  Just like Mattel.

Continuing my own research I stumbled across a very in depth article by Management Sciences.  They investigated how different organizational and system setups impact the alignment of product design interfaces and team interactions when it comes to products.  “Our results show not only that the likelihood of misalignment is greater across organizational and system boundaries, but also that weak and strong interfaces may be equally affected by boundary effects, that indirect interactions are an important coordination mechanism within boundaries, and that system modularity may prevent the alignment of interfaces and interactions across boundaries” (Sosa, Eppinger, and Rowles 2004).  Their research agrees with my opinions in the previous paragraph.  Most organizations either change their product alignment structure or are just in the wrong structure to begin with.  Misalignment doesn’t sound like a rare thing in this day in age.

Conclusion

Product structures are a vital part of any organization is this crazy, unpredictable world we all live in.  With changes happening more and more in today’s market, placing your organization’s product in the correct market with the best structure can be much more difficult than expected.  I think the best way to set up a product structure is to roll with the punches and go with the flow of the market and adjust accordingly.  I know I keep going back to the Mattel example that was previously stated but I think that rings true.  Try to realize early enough that the structure of a product needs to be changed and adapt your organization to the changes.  Whether it’s condensing product lines, expanding on them, or in Chrysler’s case, let them compete with each other, do whatever it takes to get the upper hand on the competition.

Colquitt, J. A., Lepine, J. A., & Wesson, M. J. (2011).Organizational behavior. (2nd ed.). New York, NY: McGraw-Hill Irwin.

Hur, J. and Riyanto, Y. E. (2012), Organizational Structure and Product Market Competition. Journal of Economics & Management Strategy, 21: 707–743. doi: 10.1111/j.1530-9134.2012.00340.x

Sosa, M. E., Eppinger, S. D., & Rowles, C. M. (2004). The misalignment of product architecture and organizational structure in complex product development. Management Science, 50(12), 1674-1689. Retrieved from http://search.proquest.com/docview/213167364?accountid=12924