System Organisation

Designing Institutions, Companies, Businesses

and/or Departments

- Applied System Theory -

Axel J. Papendieck

Part 5: Merging and Splitting


- Part 1
- Part 2
- Part 3
- Part 4
- Productivity
- History
- About

Merging and Splitting
Splitting: If the product oriented organization becomes too big, gets too many product lines, each with distinct research and development and customer groups a complete split up along the product line will be a reasonable, sensible solution.
Merging: This is sensible if the same levels of manufacturing are merged, on this level staffs have knowledge of the production processes, economy of scale of larger volumes of production can be expected (double number will reduce the costs by 20%). - Not advisable is increasing the length of the production processes by new types of operations. Intricate new knowledge for new production processes will be necessary - and in the past very often lead to failures.

The goal of organizing is to create an organization that manufactures and delivers products or services at given demand. The over-all work is divided and assigned to many workplaces for achieving the tasks in reasonable time and at low costs. Besides serving all market requirements in the chosen product field the organization should bring about sustainable long term profit.

That is a true balancing act, all workplaces have to be included into the considerations, not only the manufacturing workplaces - also research & development, manufacturing, sales and not least the management jobs (steering). This means finding a solution within a net of contradicting arguments.

Four main types of internal business organization are feasible:

1. A one-product organization is comparatively easy to be set up. All workplaces are deployed analog to the production process.

Multi-product organizations - most organizations are a multi-product organization - can be set up in

2. Functional organization - an organization specializing in operations, all equivalent operations are deployed in one sub-unit. This type of organization develops top knowledge for technical details but needs a very high amount of steering for executing the different production processes. When the number of different products rises at some point the efforts for steering increase to such a degree that problems and costs will reach an unacceptable level.

3. Product oriented line-organization is a "multi-one-product-organization" - if in the functional organization the feasible number of different products is exceeded the product line organization is a solution. It keeps the problems at bay by staying closer to the one product organization. The problem of this type of organization lies in sales, the different divisions of a company may address the same customer misunderstandings or even controversial situations can arise. That's why sales are very often exempted and have a customer organization.

4. Customer organization is a multi-product-organization for all customer groups of the organization. All sub-units with all production processes are assigned to special customer divisions. The customer organization is the final type, it has best knowledge on all customer relations and can achieve the highest revenue. - The disadvantages are high over-all costs.

In each organization the problem of the number of different products exists at all times. It must be constantly under scrutiny. Answers are changing from company to company and from period to period. If answers are not adequate however, the organization will face downgrading.