Organizational Design 597A corollary to this proposition follows. Organizations should distribute
tasks to best generate and utilize specialized information. This is not a new
insight. After all, division of labor and specialization characterize the modern
firm. However, specialization not only enhances productivity in the traditional
sense but also greatly improves the quality of decisions. Imagine the following
nightmare. You are a top executive whose daily calendar calls for you to make
six crucial decisions: from solving a production problem in your West Coast
plant to deciding on a new marketing plan, to dealing with federal regulators.
You are woefully unprepared to decide any of these issues. (This is sort of like
the exam no one told you about and for which you never studied.) By com-
parison, suppose you are an executive waking up to face six big decisions in
your bread-and-butter area of responsibility. Well prepared by years of experi-
ence and accumulated knowledge, you eagerly tackle these challenges.
Modern firms typically divide responsibilities along functional lines—pro-
duction, marketing, finance, and so on. This type of structure has obvious
advantages and less obvious disadvantages. One risk is that functional man-
agers may lose sight of the bigger picture. Obviously, a materials manager must
communicate with a production manager. The latter cannot plan to increase
jeans production without the necessary denim and thread on order. Similarly,
a manufacturing manager greatly benefits by learning of customers’ needs and
complaints from the marketing manager.
An alternative organizational design divides responsibility by line of prod-
uct or service. Product lines represent natural profit centers. Consequently, a
product manager would oversee many functional areas for his or her product
and make decisions to maximize profitability. Midlevel managers would still
occupy functional jobs within this product division. Management can also be
organized by the type of customer (business versus residential, for instance)
or by geographical regions. Some corporations choose to combine the advan-
tages of product and functional divisions. For example, the marketing man-
agers from the firm’s several divisions might meet periodically as a team for
coordination and consultation.The Airbus Industrie consortium was formed to produce commercial air-
craft in 1970.^16 Backed financially by its four European parents, the com-
mercial aircraft manufacturer lived the first 30 years of its existence as a
consortium of French, British, German, and Spanish aerospace companies,
plus a marketing unit charged with negotiating the sale of aircraft. During
the 1990s, the Airbus consortium succeeded in increasing its market share(^16) This account is based on “EADS: Peace on the Rhine,” The Economist, January 1, 2011, p. 78; N.
Clark, “France and Germany Agree to Streamline Airbus’s Parent,” The Wall Street Journal, July 17,
2007, p. C5; D. Michaels, “Airbus Revamp Brings Sense to Consortium, Fuels Boeing Rivalry,” The
Wall Street Journal, April 3, 2001, p. A1; D. Michaels, “Europe’s Airbus Ready to Spread Wings as a
Company,” The Wall Street Journal, June 23, 2000, p. A15; and J. Tagliabue, “Airbus to Become an
Independent Corporation,” The New York Times, January 14, 1997, p. D1.
Airbus’s
Dysfunctional
Organization
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