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The Functional Form—The functional form of organization can be thought of as a special-purpose machine designed to produce a limited line of goods or services in large volume and at low cost. The logic of the functional form is centrally coordinated specialization. Departments, each staffed with specialized experts in numbers established by a central budget, repeatedly make their contribution to the firm's overall effort in accordance with a common schedule. To be successful, the functional form's specialized skills and equipment must be fully and predictably operated. Firms in the late nineteenth and early twentieth century frequently integrated forward, creating new wholesaling and retailing channels to assure that their output could be efficiently distributed and sold. Similarly, these firms often integrated backward to assure themselves the steady flow of materials and components essential to efficient operation. Today's functional paragons, such as Wal-Mart, are masters at obtaining these kinds of efficiencies, but typically they are not as vertically integrated.
Although vertical integration assures functionally structured firms input and output predictability, it does not come without costs. The further backward and forward a firm integrates, the greater the costs of coordination and the larger the number of specialized assets demanding full utilization. Ultimately, it becomes difficult to determine whether any particular asset along the value chain is making a positive contribution to overall profitability. In fact, the recent trend toward disaggregation (e.g., buying rather than making components, outsourcing sales or distribution) reflects the recognition by many firms that coordination costs and asset underutilization are offsetting the benefits of predictability and hierarchical control.
- JasonLv 41 decade agoFavorite Answer