Strategies and Structures
PETER F. DRUCKER
"The best structure will not guarantee results and performances, but the wrong structure is a guarantee of non-performance"
Organization studies leading to the reorganizing of companies, divisions, and functions have been one of the more spectacular “growth industries” of the last few decades. Everybody—whether business, government department or armed service, research laboratory, Catholic diocese, university administration, or hospital— seems to be forever engaged in reorganizing.
There are reasons for this interest in organization and for the underlying conviction that inherited organization structures or structures that “just grew” are un-likely to satisfy the needs of the enterprise. Above all, we have learned the danger of the wrong organization structure. The best structure will not guarantee results and performances, but the wrong structure is a guarantee of nonperformance. All it produces are friction and frustration. The wrong organization spotlights the wrong issues, aggravates irrelevant disputes, and makes a mountain out of trivia. It accents weaknesses instead of strengths.
The right organization structure is, thus, a prerequisite of performance.
Until very recently, interest in organization was to be found only in very large businesses. The earlier examples—Alfred P. Sloan’s organization structure for General Motors in the early 1920s, for one—all came from large businesses.
Today, we know that organization becomes most critical when a small business grows into a medium-sized one, and a simple business into a complicated one. The small business that wants to grow, even into only a medium-sized business, has to think through and work out the right organization to enable it both to function as a small business and to be able to grow into something bigger. Similarly, the simple one-product, one-market business faces crucial organization problems the moment it adds even a little diversity or complexity.
YESTERDAY’S FINAL ANSWERS
But while we have accepted that organization and management structure are crucial, we are fast outgrowing yesterday’s “final answers,” as indicated in chapter 7.
Twice in the short history of management we have already had the “final answer” to organization. The first time was around 1910 when Henri Fayol, the French industrialist, had thought through the functions of a manufacturing company. At that time the manufacturing business was, of course, the truly important organizational problem, and the functions he defined then—such as engineering, manufacturing, and marketing—still apply to manufacturing businesses today.
A generation later one could again say that we “knew.” Fayol had given “the answer” for the single-product manufacturing business. Alfred P. Sloan, Jr., in organizing General Motors in the 1920s, made the next step. He found “the answer” for organizing the complex and large manufacturing company. The Sloan approach used Fayol’s functional organization for the subunits, the individual departments, but organized the business itself on the basis of federal decentralization. This structure is based on decentralized authority and coordinated control. After World War II, it became the organization model worldwide, especially for larger organizations.
Another generation later, by the early 1950s, it was becoming clear that the General Motors model was no more adequate to new and important challenges in organization than Fayol’s model had been adequate to the realities of a very big business that Alfred P. Sloan, Jr., faced when he tackled the task of making General Motors manageable and managed.
Where they fit the realities of an organization, Fayol’s and Sloan’s models are still unsurpassed. Fayol’s functional organization is still the best way to structure a small business, especially a small manufacturing business. Sloan’s federal decentralization is still the best structure for the big multiproduct company. None of the new design structures comes nearly as close to fulfilling the design specifications of organization structure as do functional organization and federal decentralization if and when they fit. But more and more of the institutional reality that has to be structured and organized does not fit. Indeed, the very assumptions that underlay Sloan’s and Fayol’s work are not applicable to major organization needs and challenges.
Adapted from “Management: Tasks,Responsibilities,Practices”, P.407-422
