Fundamentals of Organizing

Departmentalization
departmentalization The basis on which individuals are grouped into departments and departments into total organizations. Another fundamental characteristic of organization structure is departmentalization, which is the basis for grouping position into departments and departments into the total organization. Managers make choices about how to use the chain of command to group people together to perform their work. There are five approaches to structural design that reflect different uses of the chain of command in departmentalization. The functional, divisional, and matrix are traditional approaches that rely on the chain of command to define departmental groupings and reporting relationships along the hierarchy. Two approaches have emerged to meet organizational needs in a highly competitive global environment. A brief illustration of the five alternatives is presented in the chart on the other side . 1. Vertical functional approach. People are grouped together in departments by common skills and work activities, such as in an engineering department and an accounting department. 2. Divisional Approach. Departments are grouped together into separate, self-contained divisions based in a common product, program, or geographical region. Diverse skills rather than similar skills are the basis of departmentalization. Horizontal matrix approach. Functional and divisional chains of command are implemented simultaneously and overlay one another in the same departments. Two chains of command exist, and some employees report to two bosses. Team-based approach. The organization creates a series of teams to accomplish specific tasks and to coordinate major departments. Teams can exist from the office of the president all the way down to the shop floor. Network Approach. The organization becomes a small, central hub electronically connected to other organizations that perform vital functions. Departments are independent, contracting services to the central hub for a profit. Departments can be located anywhere in the world.

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Each approach to structure serves a distinct purpose for the organization, and each has advantages and disadvantages. The basic difference among structures is the way in which employees are departmentalized and to whom they report. The differences in structure illustrated here have major consequences for employee goals and motivation. Let us now turn to each of the five structural designs and examine their implications for managers.

Daft, Richard L., Management, 5th ED, Dryden 2000