Product Team Structure

The multidivisional structure that I have been discussing in the last several posts arises in response to the competitive requirements of the marketplace which demand increased speed and efficiency in the product development and launch process; however, a structure in which each division has its own group of support functions can be expensive to operate and create impediments to the dissemination of information and innovations throughout the company.  In order to overcome some of the disadvantages of a multidivisional structure while retaining a product-based focus companies often consider using a “product team structure,” which combines elements of the product division—centralized support functions—and multidivisional structures—dedicated support function resources for each product.  Specifically, when a product team structure is used the company creates product development teams that include representatives from each support function who specialize in the development and manufacturing requirements of a single product or a group of related products.  For example, a product team might include designers, product and manufacturing engineers, procurement specialists, marketers, salespersons, and financial analysts.  The primary loyalty of members of each product team will be to the team and not to any functional group and each team will be managed by a product team manager who will oversee all of the operational activities of the team.  Authority for all key decisions relating to product development and manufacturing is delegated to the team and team members will bear the ultimately responsibility for the success or failure of its efforts.

A simple organizational chart for a product team structure would be similar to the chart for a product division structure and would have three levels of management personnel as follows from top to bottom: the CEO; the senior executives (i.e., vice president or chief functional officer) for each support function (e.g., sales and marketing, research and development, finance, and procurement), each reporting to the CEO; and the product development teams for each important product or related group of products, each managed by a product team manager and composed of product-focused specialists from each support function.  The senior executives at the second level are responsible for overall coordination of their respective functions; however, most of the functional resources will be assigned to the product development teams and functional specialists are allowed to make decisions on their own based on the needs of their teams without interference or delays from the functional executive.  The use of self-contained product development teams that include all of the functional resources necessary for team to complete its operations obviously improves the level of integration in the organizational hierarchy and facilitates the type of quick decision making required in order to satisfy the rapidly changing requirements of customers.  In that way the product development teams are similar to the product divisions in a multidivisional structure.

The main advantages of a product team structure are most apparent when comparing it to some of the problems that can arise when a company relies on the product division structure and its reliance on centralized support functions.  The big concern with respect to product development under a product division structure is that the various support functions typically make their contributions sequentially with little or no coordination or collaboration—the original idea for the product may come from the R&D or design function, the engineering function will build a prototype, the inputs for the product will be selected and purchased by the procurement function, production will be handled by the manufacturing function, and sales and promotion will fall under the control of the sales and marketing function.  Unless the activities of these functions are carefully integrated conflicts will inevitably arise as functions pursue the goals that are most important to them even if they are at odds with the goals of other departments.  For example, the engineering function may want to develop a product with certain technical features regardless of the impact on production costs while the sales and marketing function may be making unreasonable demands on procurement and manufacturing to cut their costs so that the price for the product can be kept at a competitive level.  The end result is that it takes longer to launch new products and those products are more costly to manufacture and of lower quality.  The product team structure attempts to resolve these issues by organizing functional specialists around the product rather than their parochial functional groups and the anticipated advantages of the team orientation include more rapid product development, improved communication and problem solving, increased efficiency, and  better product quality.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

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