Types of Departmentalization Used by Business free essay sample

Every organisation has certain basic parts that are made up of people who perform, supervise, and plan besides those who render support services and technical advice. As such, studying the structure or design of an organisation means analysing how these parts are put together, who reports to whom, the degree of centralisation or decision making power concentrated at the top, the extent of rules, policies, regulations, and procedures in the organisation.The building of the initial structure of an organisation may be based on the conditions prevailing in the society and the industry characteristics prevailing at the time and the personality of the founder (entrepreneur). As the organisations grow in their size from small to large over a period of time, their priorities do change and it becomes necessary for the organisations to make changes in the organisation design in order to ensure that the organisations function efficiently.In any discussion of Organizational Structure, it’ s helpful to become acquainted with a few key terms that describe specific aspects of business organization practices. Very simply, Organizational Structure is the manner in which an organization arranges itself. Once an organization investigates its options and decides upon how it’s going to structure itself, it’s common to draw up an Organizational Chart. An Organizational Chart Some organizations consider their Organizational Charts as confidential, while other organizations most of them, in fact, do not.Some companies go so far as to post their Organizational Charts on their publicly accessible websites. Other key terms include Centralized and Decentralized Decision Making. Centralized decision making refers to a business model in which decisions are directed to the top of the organization. Decentralized decision making is a model in which the organization tends to push the decisions down to the lowest levels, which can be a good thing.With decentralized decision making, the benefit is that the individuals who best know the company’s processes are those lower in the organization, those who roll up their sleeves and work with the processes every day. Theoretically, such individuals are in a better position to respond to external and internal drivers and make rapid decisions to control those drivers before they get out of hand and negatively affect the organization. Decentralized decision making tends to be a trap, as it may dangerously undermine upper management in the organization.Nonetheless, decentralized decision making is increasingly accepted as a viable business model today. Yet another key term is one known as Formalization, the degree to which an organization tends to document its processes, rules, and regulations. Centralized and Decentralized Decision Making and Formalization will vary from one organizational structure to another, depending upon the options for change that are open to a company. Another key term that is familiar in the designing an organization is what we call a Hierarchy of Authority.The concept of Hierarchy of Authority says that an organization must know who is in charge of which elements and who r eports to whom. Of course, this has implications for the division of labour because, under the Hierarchy of Authority, many tasks are divided and distributed across the organization. This process necessarily entails varying degrees of specialization of jobs and tasks, which we see a lot these days as the business environment grows more sophisticated. Regarding Types of Organizational Structures, I will first critically note that an appropriate organizational structure for any given company is a very elusive animal, indeed.Every company tends to organize itself differently, so there is no absolute right and no absolute wrong way to design an organization. Appropriate organizational structure depends upon the unique strategy of the business, its unique customer base, its unique sense of products and services, and its management of these considerations as they are dispersed throughout the enterprise. The most common organizational types may be classified as Functional Structure, Divisional Structure, Matrix Structure. A Few Common Types of Departmentalization Functional departmentalization Grouping activities by functions performed. Activities can be grouped according to function (work being done) to pursue economies of scale by placing employees with shared skills and knowledge into departments for example human resources, IT, accounting, manufacturing, logistics, and engineering. Functional departmentalization can be used in all types of organizations. . Product departmentalization Grouping activities by product line. Tasks can also be grouped according to a specific product or service, thus placing all activities related to the product or the service under one manager. Each major product area in the corporation is under the authority of a senior anager who is specialist in, and is responsible for, everything related to the product line. LA Gear is an example of company that uses product departmentalization. Its structure is based on its varied product lines which include women’s footwear, children’s footwear and men’s’ footwear. Customer departmentalization Grouping activities on the basis of common customers or types of customers. Jobs may be grouped according to the type of customer served by the organization. The assumption is that customers in each department have a common set of problems and needs that can best be met by specialists.The sales activities in an office supply firm can be broken down into three departments that serve retail, wholesale and government accounts. Geographic departmentalization Grouping activities on the basis of territory. If an organization’s customers are geographically dispersed, it can group jobs based on geography. For example, the organization structure of Coca-Cola has reflected the company’s operation in two broad geographic areas, the North region sector and the Central region sector, which includes the Kuala Lumpur, the Selangor, Negeri Sembilan.Process departmentalization Grouping activities on the basis of product or service or customer flow. Because each process requires different skills, process departmentalization allows homogenous activities to be categorized. For example, the applicants might need to go through several departments namely validation, licensing and treasury, before receiving the driver’s license. Functional Structure adopting by Telekom Malaysia Berhad The Functional Structure is by far the most popular organizational structure in the business world.Probably 65% to 75% of companies use the Functional Structure, because it’s basic and it makes sense. The Functional Structure is how most organizations align themselves into various departments for example, Quality Management, Information Technology, Corporate Communication, Finance, Sales and service. Within the Functional Structure, people of similar skill sets are grouped together and managed by somebody who presumably knows a great deal about those skill sets. Advantages and Disadvantages of The Functional Approach First of all, the Functional Structure follows the Centralized DecisionMaking model, such that decision making in the Functional Structure occurs at the top. This can be advantageous in the sense that there is more upper management control in the organization. It can also help individuals in their career paths, inasmuch as motivated employees move upward within the organization to assume decision-making positions. For example, you come in from college, join the Accounting Department as a Junior Accountant, move up to Accountant, and then move up to Senior Accountant, it’s a very well-defined career path.Functional Structures foster stability and efficiency. Everybody knows what his job is, and as a group they all use similar processes, so it’s a very e ffective way of operating. When you’re working with this type of structure, you can also take advantage of economies of scale. Of course, the Functional Structure has its disadvantages, as well. Perhaps the most critical disadvantage is that of poor communication and conflict between departments. A great deal of literature on Functional Structure is focused on the effect of what we call Siloing.Siloing is when an organization has very thick walls, so that the various departments are entirely isolated from one another, and members of those departments don’t think in terms of company-wide teamwork. They only attend the business of their specific department. Communication and collaboration between the departments is difficult, at best, and this is not a good organizational situation. Also, customers can become frustrated by the lack of responsiveness from organizations that are functionally structured.The scenario of customer complaints â€Å"passed off† from one department to another is familiar to most of us. Another disadvantage of the Functional Structure is that employees tend to identify themselves with their respective departments but not so much with the organization as a whole. Although the Functional Structure is the most popular and pervasive in the business world, companies should understand that the siloing effect is potentially detrimental to individual employees, departments, and the organization as a whole. Divisional Structure adopting by Kolej Tunku Abdul RahmanThe Divisional Structure is not so much based on the grouping of people according to their skill sets as it is concerned with placing groups of people with similar abilities where they are needed all across the organization. For instance, while under the Functional Structure you w ould expect to find accountants only in the Accounting Department, under the Divisional Structure you will find accountants in different divisions of the same company, in separate Accounting Departments which are dedicated to separate product lines.As you can see , each state branch has its own Functional Organization with operation, accounts, and marketing teams, permitting each prostate branch to function independently of the other product lines. Yet each product line is a component of a larger organization. Advantages and Disadvantages of The Divisional Structure The advantage of the Divisional Structure lies mainly in the coordination of functions within the separate divisions. Behind any single product group or market group or geographic group is one person who is in charge of all the functions within his division.This improves the ability of a company to respond to customer issues, because there is more accountability. Everyone in a given division reports to a single individual at the top of the division, rather than to a mere supervisor of a department. This arrangement also helps to develop managerial skills and executive skills, because people working in a Divisional Structure are exposed to all of the other functions, unlike the siloing effect seen in a straight Functional Structure.The disadvantage of the Divisional Structure lies in redundant effort and resources due to multiple departments performing essentially t he same tasks across the organization, which spells inefficiency on many levels. Within the Divisional Structure there is also a reduction in specialization and occupational skills, not to mention a high probability of in-house competition between the various divisions of the company. A divisional structure also has weaknesses. A company comprised of competing divisions may allow office politics instead of sound strategic thinking to affect its view on such matters as allocation of company resources.Thus, one division will sometimes act to undermine another. Also, divisions can bring compartmentalization that can lead to incompatibilities. For example, Microsofts business-software division developed the Social Connector in Microsoft Office Outlook 2010. They were unable to integrate Microsoft SharePoint and Windows Live until months after Social Connector could interface with MySpace and LinkedIn. Some experts suggested that Microsofts divisional structure contributed to a situation where its own products were incompatible across internal business units.Divisional Structure adopting by Universiti Tunku Abdul Rahman Matrix structures are increasingly used in organisations as they become more complex and as the pace of change increases. They are similar to project management arrangements, although matrix structures may be a permanent feature. Matrix structures, like project management, involve the creation and management of multi-disciplinary teams. The team leaders have a dual reporting relationship. For the structures to work effectively they should only be introduced when appropriate and even then after careful planning.An important aspect is the training of multi-disciplinary team leaders. However, it can also be crucial to ensure that those other key members of management who need to monitor and support matrix structures are properly selected and have received appropriate management training. For example, the matrix structure adopting by Universiti Tunku Abdul Rahman where the academic registrar has representative from head of school, course coordinator and course leader and its lead by the dean. The academic registrar will be operates similar to project which need involvement from few departments.Advantages and Disadvantages of The Matrix Structure The advantage of the Matrix Structure is that it’s extremely efficient, particularly when resources are scarce. This organizational structure is a very good way to ensure that expensive specialists are kept busy all the time and that they are using their skills on the most critical portions of a project for the good of the organization. It also allows an organization to start projects quickly, because there’ s no need to hire staff from outside.The staff is readily available, and they are already acquainted with the pace, so projects can be launched very quickly. A Functional/ (Weak) Matrix organizational structure, such as our client company had in place, works well when the focus is on quality and technical expertise. Under this structure, functional managers are responsible for products created within their areas of expertise. The downside: In the company on which this case study was based, it just wasnt working. And their experience was not uncommon.The functional- based organization structure tends to undermine the authority and decision-making capability of project managers, making project success more difficult. The functional or weak matrix form of organization does have some advantages. In this case, first of all, it was the currently existing state in the client organization. Change is always traumatic in organizations and, to the extent that we could preserve existing processes and systems, the upheaval-and resistance to it-would be minimized.Functional stovepipe organizations take a beating in discussions of optimal organizational structure, but the fact is that they are familiar to people, and thus comfortable for them. In addition, within this structure, IT and IS departments are fully empowered to complete isolated projects within their own stovepipes. The client organization already possessed well-established communications processes and authorities within the functional areas.From a purely logistical point of view, the staff work locations were already centralized around functional department assignments, making information sharing among team members more straightforward. The Matrix Structure also helps develop cross-functional skills in employees, as they are dealing with many different types of projects, working with and learning from many othe r participants with a diversity of skill sets. The Matrix also increases employee involvement because the project managers seldom possess all the necessary technical and functional knowledge. They rely on the expertise of those â€Å"borrowed† staffers to make more decisions at a technical level. The main disadvantage of the Matrix Structure, certainly, is that many employees become very frustrated and confused with the chain-of-command in these hastily-assembled support teams. Who’s the boss? My department head or my project manager? There are also conflicts between project and department managers concerning deadlines and priorities. There can be competition between project managers to acquire the â€Å"best† project support staff from the finite pool of available people.