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Product Model

The third popular organizing structure is the product model. This model is predominantly structured around the business’s product (or service) lines. In the product arrangement, specialists from various disciplines, instead of being scattered across a number of separate and distinct functional offices, are gathered into offices based on product line, customer type, or project. Sometimes a product team can be disbanded when its mission is accomplished, or the product becomes redundant. New product lines can also be added when appropriate; at least in theory.

Figure 7.3 illustrates a basic composition of the product model

Companies applying the matrix model still basically rely on traditional functional structures—with some adjustments to their hierarchy to sup-

Product model port project teams

Fig. 7.3 Product model port project teams. Product-centered organizations, on the other hand, are built around project teams as their units of production. Industries such as engineering, construction, and aerospace are examples of firms that use the product model.

There are several clear advantages in structuring organizations and people around product lines. For starters, specialists from varied disciplines now report to a common manager accountable for planning, organizing, directing, and controlling their work efforts. So the product manager is in a much better position than the functional manager to oversee the integration of the product’s component parts.

In the product structure, the line-of-sight from concept to completion has greater visibility. There’s a single point-of-contact for customers needing assistance. Clearer lines of accountability and responsibility have the potential to benefit the firm’s customers and other stakeholders. Being multidisciplinary, this form of structure offers every employee a broader perspective of operations, opening up opportunities for the flexible deployment of the workforce (Chap. 4).

Product managers also need to be generalists; that means having a greater appreciation and understanding of the integration of all product or service operations. This model offers a good training ground for future leaders who need a grasp of the big picture. Individuals get to rub shoulders with peers from different disciplines, inevitably learning more about their colleague’s work and approaches. This heightens opportunity for learning—a concept I covered in Chap. 3—an essential component of adaptability, agility, speed, and flexibility. There’s far smoother and more efficient project evolution. It can be beneficial when R&D, production, engineering, logistics, field testing, maintenance, marketing and finance, and other functions collaborate early and often on the products and services the business produces or develops.

The result of this obligatory collaboration process can form the foundation for agile performance. Gains can be made in product quality, reduced cycle times, improved service, and far better positioning to recognize opportunities to capitalize on cost savings throughout the value chain. Contrast this with the functional model where “things fall through the cracks,” and where it is often said, “the right hand doesn’t know what the left hand is doing.” Disagreements can be resolved by a manager with supervision over the entire product cycle.

Not surprisingly, quicker decisions can be made in this organizing structure than in the other two models. In comparison, with the functional structure,

  • • cross-functional communication channels need to be developed and consciously maintained;
  • • departments are forced to make compromises; and
  • • parallel matters such as budgeting priorities, safety procedures, and differing workloads have to be coordinated and hammered out.

All of these matters take time, unnecessary effort and duplication.

So what are the disadvantages of the product model?

There are three drawbacks with the product organizing structure. First, product offices have to compete with each other to gain essential resources from “head office,” in the same way as functional silos do. This kind of resource haggling is no different to the rivalry experienced in departments lobbying for more resources from top management. Decisionmaking slows down and rivalries surface.

Second, a new product idea may not get proper consideration, on the basis of it not “fitting in” with an established office. The set up costs of another product line and the vested interest in not diverting resources away from the other products, renders new product development slow and challenging.

Third, the concentrated, in-depth, specialized technical capability found in functional departments isn’t present in the product office. The comprehensive technical skills-set is lacking in the product model in comparison with the functional model. And ironically, pushing head office to resource additional specialists to plug specialist gaps can be more challenging than increasing the size of a department of specialists under the functional structure. An exceptional case has to be made by a product office, whereas a department can rationalize recruiting a new employee simply on the basis of being short-staffed. Resource rivalry, territorial tussles, and protection of vested interests are still familiar in businesses structured along product lines.

These three limitations of the product model can negatively affect the company’s capacity to innovate and decrease processing speed—two dimensions of organizational agility.

Where the rubber meets the road ...

Starbucks coffee company's organizational structure

Starbucks is the largest coffee house chain in the world. The firm's industry leadership is partly attributed to its organizational structure. A company's organizational structure influences management and leadership, communication, change, and other variables critical to business success. Starbucks has evolved to have an organizational structure that matches current business needs. This structure is unique to Starbucks, although it is based on a conventional model of organizational structures. Starbucks succeeds because its organizational structure grows with the business, enabling the company to optimize processes and the quality of its goods and services.

Starbucks Coffee's organizational structure changes to serve the needs of the business. This structure supports the company's goal of global expansion and diversification. Starbucks has a matrix organizational structure, which is a hybrid mixture of different features from the basic types of organizational structure. The following are the main features of Starbucks Coffee's organizational structure:

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