Departmentation is one of the building blocks of organizational structure. The purpose of departmentation is to specialize activities, simplify the tasks of managers and maintain control in an organization. As departments vary with respect to basic patterns used to group activities, we will identify some common and widely used bases along which departments are created and discuss further about the more appropriate and effective base of departmentation. What is departmentation?
Departmentation is the grouping of jobs according to some logical arrangement. It is the manner in which activities should be divided and formed into specialized groups in an organization. Rationale of departmentation:
When organizations are small, the owner-manager can personally oversee everyone who works there. As an organization grows, however, pe rsonally supervising all the employees become more and more difficult for the owner-manager and the number of specialized jobs also increases. Consequently, new managerial positions are created to supervi supervise se the work work of others others.. Employ Employees ees are not assign assigned ed to parti particula cularr manage managers rs randomly. Rather jobs are grouped according to some plan. The logic embodied in such a plan is the basis for all departmentation. Base of departmentation:
The crucial managerial consideration when creating departments is to determine the basis of grouping jobs. Departmentation is done to achieve similar advantages by different approaches. In fact, several bases are used throughout the organization, but the basis used at the highest level determines critical dimensions of the organization. Some of the more widely used departmentation bases are described are given below. The first base- functional, refers to internal activities of the organization. The other three bases- geography, customer and product are a re external to the organization. Departmentation by enterprise function:
Functional departmentation is grouping of same or similar activities to the function of an enterprise, such as operations, sales, finance etc. each of these functions can be a specific department and jobs can be combined according to them. It is the most common base for departmentation, especially among smaller organizations providing a narrow range of products and services. For example, manufacturing organizations such as General Motors attracted considerable attention when it combined its traditional product divisions into two functional departments-production and sales and under the direction of a new Chief Operations.
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Officer (COO), GM accelerated its consolidation of its two auto divisions into one functional organized entity. President
Marketing
Production
Finance
Personal
Research
Diagram: A functional organization grouping (in a manufacturing company) Advantages: •
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Function based departmentation is efficient as it reflects the functions of business logically. It simplifies training as supervision can be facilitated and it follows principle of occupational specialization.
Disadvantages: •
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Overall organization objectives may face risks as employees might concentrate too much own their own unit. Narrow training due to high degree of job-specialization and slow decision making.
Departmentation by geography:
Departmentation by geography is grouping of activities by area or territories. It is widely used in companies operating over wide geographic areas. It involves a method of covering broad-based operations by dividing them into smaller geographical units which is assigned to a manager who will be in charge of all the activities in that area. Geography based departmentation is used for many multi national companies such as Nestle, which uses geography based departmentation dividing three geographical regions (America, Europe and Asia) into three zones-zone EUR, zone AMS and zone AOA to sell their products.
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President
Western Region
Southwest Region
Central Region
Southeast Region
Eastern Region
Diagram: A geographic grouping ( in a manufacturing company) Advantages: •
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Geography based departmentation enables the organization to respond quickly to unique local environment. It also provides training ground for managers who can provide valuable insights about a particular field. Thus better face-to-face communication with local operations can be established.
Disadvantages: •
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If geographic departmentation is adopted in an organization, a large administration might be required to keep track of units in scattered regions. It increases problem of top management control.
Departmentation by customer group:
Customer departmentation is grouping activities to respond to and interact with specific customers or customer groups. Many organizations such as educational institutes, retail stores, banks, wholesale activities adopt this kind of departmentation. For example, department stores such as wall mart is set up with men’s wear, computers, hardware and such other departments to directly appeal to a specific type of customers. President
Community-city banking
Corporate banking
Institutional banking
Diagram: Customer departmentation (in a large bank)
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Advantages: • • •
Customer departmentation puts emphasis on customer needs. Gives customers feeling that they have an understanding supplier (banker). It also enables to build expertise in customer area.
Disadvantages: •
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Difficulty in coordinating operations between competing customer demands may arise. Requires managers and staff expert in customer problems.
Departmentation by products:
Product departmentation is the process of grouping activities according to products or product lines. It is growing in importance in multiline, large-scale enterprises. It is the process of delegating extensive authority over the functions related to a given product to a division executive and thus exacting profitability from each of the manager. For example, General Motors (GM) pioneered in this kind of departmentation when it evolved into five separate auto divisions: Chevrolet, Oldsmobile, Pontiac, Buick and Cadillac.
President Chief of operations
Chevrolet
Oldsmobile
Pontiac
Buick
Cadillac
Diagram: Simplified product departmentation in GM Advantages: •
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Product departmentation focuses on product line and facilitates use of specialized capital, facilities, skills and knowledge. It permits growth and diversity of products. 4
Disadvantages: • •
It can cause oversimplification and redundancy. Requires more persons with general manger ability and creates problem of control at top.
Matrix organization:
Matrix organization is another kind of departmentation that combines functional and product patterns of departmentation in the same organization. Matrix organizations achieve the desired balance by overlaying a horizontal structure of authority,influence on the vertical structure. This kind of organization occurs frequently in construction, aerospace, marketing etc. Advantages: • •
Matrix organizations are oriented toward end results. Professional identification is maintained and pinpoints product-profitability.
Disadvantages: • •
In matrix organization, conflict in organization authority exists. Unity of the organization may be threatened.
Choosing the pattern of departmentation:
There is no single best form of departmentation that is applicable to all organizations and all situations. The pattern used will depend on the given situations and what managers believe will yield the best results for them in the situation they face. The pattern of departmentation which I prefer is the product departmentation. It is more effective than other patterns in many ways. As a firm grows it is difficult to coordinate the various functional firms due to more complex jobs and limitations in the span of management. At this point, establishing product units is necessary. The product based units are often free standing units that can design, produce, manufacture and market their own products, even in competition with other divisions in the same firm. Product based organizations foster initiative and autonomy by providing division mangers with the resources necessary to carry out their profit plans. Companies will find certain advantages with this departmentation as it is easier to control products. Many multi national companies adopt this departmentation.
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For example, Kodak Company uses the product-based structure to assign responsibility for worldwide research and development, manufacturing and distribution of its products such as digital camera, printer, scanner etc. Kodak believes that this structure enables managers to respond more quickly to market situations. It also easier to monitor performance and maintain accountability in product based departmentation. Product departmentation enables growth and diversity of products and services as attention and effort is given to product lines. For example, Boeing, an aerospace company has two large divisions which are- Boeing Commercial Airplanes and the Integrated Defense Systems. As result of product departmentation, Boeing has achieved a strong position in the aviation industry. Techsmart, a hypothetical firm which manufactures and sell computer and software can run more effectively by adopting product departmentation. It has two product based departments at the highest level of the firm. One is responsible for all activities associated with personal computer business, and the other handles the software business.
President
Computers
Operations
Finance
Software
Sales
Sales
Finance
Diagram: product departmentation in Techsmart
Although product departmentation has some drawbacks such as increasing administrative costs and causing difficulty in problem of top management control, because of its effectiveness in large enterprises for enhancing speed of decision making as well as enabling growth of products and coordination of functional activities, it is the type departmentation which I would more likely choose.
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Design
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