05: Organizational Structure: Departmentation

The grouping of activities and people into departments makes organization expansion possible. Departmentation can be done by enterprise function, by territory or geography, and by the kind of customers served. Other kinds of departmentaion are the product organization grouping, matrix or grid organization, project organization, and the strategic business units (SBU)

Patterns of Departmentation

At the outset, it must be emphasized that there is no single best way of departmentizing that is applicable to all organizations or to all situations.

Departmentation by Enterprise Function

Functional departmentation embodies what enterprises typically do. The basic (manufacturing) enterprise functions are engineering, production, sales or marketing and financing.
Often, these particular functional designations do not appear in the organization chart. First, there is no generally accepted terminology. Second, basic activities often differ in importance. E.g. hospitals have no selling departments and churches no production department.
Functional departmentation is the most widely employed basis for organizing activities and is present in almost every enterprise at some level in the organizational structure.

Departmentation by Territory or Geography

Territorial departmentation is especially attractive in sales and productions to large-scale firms or other enterprises whose activities are physically dispersed. On the other hand finance, is concentrated at the headquarters. This is used mostly in Govt. organizations.

Customer Departmentation

Grouping activities so that they reflect a primary interest in customers is common in a variety of enterprises.

Departmentation by Product

Grouping activities on the basis of products or product lines has been growing in importance in multiline, large-scale enterprises. With the growth of the firm, production managers, sales and service managers, and engineering executives encountered the problems of size. The managerial job becomes complex. At this point, reorganization on product basis becomes necessary. This structure permits top management to delegate to division executive extensive authority over the manufacturing, sales, service, and engineering functions that relate to a given product line and to exact a considerable degree of profit responsibility from each of these mangers.

Matrix Organization

Another kind of departmentation is matrix or grid organization or project or product management. However, pure project management need not imply a grid or matrix. The essence of matrix organization normally is the combining of functional and project or product patterns of departmentation in the same organization structure. This form has been common in engineering and in research and development; it has also been widely used although seldom drawn as a matrix, in product marketing organization. This kind of organization occurs frequently in construction, in aerospace, in marketing.

Strategic business units (SBUs)

Companies have been using an organizational device generally referred to as a Strategic Business Units (SBU). SBUs are distinct little business set up as units in larger company to ensure that a certain product or product line is promoted and handled as thought it were an independent business.
An SBU must:

1. Must have its own mission, distinct from the mission of the mission of other SBUs.
2. Must have definable groups of competitors
3. Prepare its own integrative plans, fairly distinct from those of other SBUs
4. Manage its resources in key area
5. Have a proper size, neither too large nor too small.

Thus SBU is given its own mission and goals, as well as manager who, with the assistance of a full time or part time staff, will develop and implement strategic and operating plans for the product. The major benefit of utilizing an SBU organization is to provide assurance that product will not get “lost” among other products in a large company. It is thus an organizational technique for preserving entrepreneurial attention and drive. In fact, it is an excellent means of promoting entrepreneurship, which is likely to be lacking in large company.

Potential problems with SBUs

Companies should invest in the core competencies of the firm. Allocation of resources to individual SBUs can result in underinvestment in core competencies which is benefit to the total organization. Also SBU mangers may not be willing to share talented people and may hide them rather than lend them to another SBU.

Organizational structure for the global environmentdepends on a variety of factors, such as the degree of international orientation and commitment. It may vary greatly, ranging from having an export department at the headquarters to regional groupings, with many various in between. In addition, companies may have also one or more functionally organized groupings within a region.

Virtual Organization is a loose concept which gains access to another firm’s competence, to gain flexibility, to reduce risk, or to respond rapidly to market needs. Clearly there are many unanswered questions surround the virtual organization.

Boundaryless Organization is open, anti-parochial environment; friendly towards the seeking and sharing of new ideas, regardless or their origin. The purpose of this initiative was to remove barriers among the various departments as well as between domestic and international operations.

Choosing the Pattern of Departmentation

There is no one best way of departmentizing that is applicable to all organizations and all situations. The most appropriate pattern depends on various factors in given situation. These factors include the kind of job to be done, the way the task must be done, the kinds of people involved, the technology, the people served and the other internal and external considerations.

1. The aim is to achieve objectives. Departmentation is not an end in itself but is simply a method of arranging activities to facilitate the accomplishment of objectives. The main concerns must be the type of organizational environment that the manager wishes to design and the situation being faced.
2. Mixing types of Deparmentation. The objective of departmentation is not to build a rigid structure, balanced in terms of levels and characterized by consistency and identical bases, but to group activities in the manner that will best contribute to achieving enterprise objectives. If a variety of bases does this, there is no reason why manger should not take advantage of the alternatives before them. But sometime this logic is ignored may be because to make an organization chart look pretty or to maintain control, specialist often insist that all departmentized activities below the primary level of organization be group in exactly the same manner.