WELCOME TO CHECK POINT 14

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LEAN MANAGEMENT GUIDELINES FOR CHECK POINT 14

THE ORGANIZING PROCESS

One of the main tasks of every business owner and manager in the organizing process is the sub-division of the company into a number of specialized working groups to ensure maximum performance.

This task is known as Organizational Departmentalization. The prime purpose of organizational departmentalization is to group people and activities into departments to allow orderly functioning of the enterprise. 

The complexity of Departmentalization Methods depends upon the nature, size, and objectives of a particular organization. Some commonly used departmentalization methods are illustrated below.

DEPARTMENTALIZATION METHODS

However, it will be very beneficial for you to become familiar with the content of the entire check point in the future, because one day you may decide to take your business to the next level and employ additional employees within your organization.

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WHAT IS DEPARTMENTALIZATION BY FUNCTION?

Departmentalization By Function, or Functional Departmentalization, is commonly used by small and medium-sized companies that offer a limited range of product or services to customers. 

Departmentalization by function facilitates the development of a Functional Structure and provides a basis for separating various functions within the organization. Such functions include general administration, human resources, finance and accounting, operations, marketing and sales as illustrated below.

ILLUSTRATION OF A FUNCTIONAL STRUCTURE

ADVANTAGES OF FUNCTIONAL DEPARTMENTALIZATION

The example of Functional Departmentalization, illustrated above, presents a typical design for a small or medium-sized manufacturing company.

Functional departmentalization in a non-manufacturing organization can be carried out in a similar manner, although the operations management function may include additional functional responsibilities, depending upon the specific nature of operations, namely: service, merchandizing (wholesale or retail), project or contract management.

Every executive manager within a Functional Organization is in charge of a specific range of operational activities on a company-wide basis as outlined below.

WHO IS IN CHARGE IN A FUNCTIONAL ORGANIZATION?

The main advantages of the Functional Departmentalization Method are summarized below.

ADVANTAGES OF THE FUNCTIONAL DEPARTMENTALIZATION METHOD

WHAT IS DIVISIONAL STRUCTURE?

A Divisional Structure represents a method of departmentalization frequently used by medium-sized and larger organizations in the marketplace.

As an organization grows, it develops new product or service lines, increases the number of customers, and expands into new territories. As a result, a simple functional structure may become less effective, thus creating apparent problems in planning and managing operational activities. 

This represents a prime disadvantage for Growing Organizations that operate in a rapidly changing consumer and technological environment and that offer a broad range of products or services to a large number of customers. For this reason a divisional structure may prove to be more effective. There are several types of divisional structures illustrated below.

THREE TYPES OF DIVISIONAL STRUCTURES

All three types of Divisional Structures are explained in detail next. Irrespective of the type of departmentalization, however, all companies with a divisional structure have similar characteristics outlined below.

CHARACTERISTICS OF A COMPANY WITH A DIVISIONAL STRUCTURE

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WHAT IS DEPARTMENTALIZATION BY PRODUCT OR SERVICE?

Departmentalization By Product Or Service is particularly useful for organizations which handle diversified types of products or services.

Many medium-sized and larger multi-product and multi-service companies are departmentalized according to a product or service organizational structure. In a company departmentalized by product or service, all product or service lines are grouped into separate divisions as illustrated below.

ILLUSTRATION OF DEPARTMENTALIZATION BY PRODUCT OR SERVICE

DEPARTMENTALIZATION BY PRODUCT OR SERVICE

ADVANTAGES AND DISADVANTAGES OF
DEPARTMENTALIZATION BY PRODUCT OR SERVICE

WHAT IS DEPARTMENTALIZATION BY MARKET OR CUSTOMER?

Departmentalization By Market Or Customer is particularly useful for medium-sized and larger companies that operate in diversified markets and deal with a substantial number of customers.

A large manufacturing company, for example, might have separate divisions for different types of markets (e.g. industrial or consumer), or for customers in different industries (e.g. chemical or engineering) as illustrated next.

ILLUSTRATION OF DEPARTMENTALIZATION BY MARKET OR CUSTOMER

DEPARTMENTALIZATION BY MARKET OR CUSTOMER

ADVANTAGES AND DISADVANTAGES OF
DEPARTMENTALIZATION BY MARKET OR CUSTOMER

WHAT IS DEPARTMENTALIZATION BY TERRITORY

Departmentalization By Territory is particularly useful for medium-sized and larger companies that conduct their business in different geographic regions.

A large manufacturing company, for example, might have separate divisions in East Coast and West Coast regions, or in different countries. Typical departmentalization by territory is illustrated below.

ILLUSTRATION OF DEPARTMENTALIZATION BY TERRITORY

DEPARTMENTALIZATION BY TERRITORY

ADVANTAGES AND DISADVANTAGES OF
DEPARTMENTALIZATION BY TERRITORY

TWO BASIC TYPES OF ORGANIZATIONAL STRUCTURES

The departmentalization methods, described earlier, enable management to develop two basic types of organizational structures: a Functional Structure and a Divisional Structure as summarized below.

TWO PRIME METHODS OF DEPARTMENTALIZATION

 WHAT IS A MATRIX STRUCTURE?

There is, however, a third type of organizational structure which combines the advantages of both functional and divisional structures. This structure, illustrated below, known as a Matrix Structure, is frequently applied to specialized product or project organizations.

ILLUSTRATION OF A MATRIX STRUCTURE

ADVANTAGES AND APPLICATIONS OF A MATRIX STRUCTURE

In a Matrix Structure the team members in every group have two superiors: the functional vice president and the product or project manager. This creates a Dual Chain Of Command, contradicting the classical Unity Of Command Principle within the organization.
 
Thus, for example, each member in the Accounting Group A is simultaneously accountable to vice president, finance and to the manager of Project A.

Each executive manager within a matrix organization is in charge of specific functional activities on a company-wide basis. This is similar to the arrangement which exists in a functional organization.

The functional responsibilities of executive managers in a Matrix Organization, based on the previous example, are outlined below.

EXAMPLES OF FUNCTIONAL RESPONSIBILITIES 
OF EXECUTIVE MANAGERS IN A MATRIX STRUCTURE

EXAMPLES OF MANAGEMENT AUTHORITY IN A MATRIX STRUCTURE

Executive Managers have authority over employees within their department with respect to coordination of functional activities, promotions, and salary recommendations. Project Managers, on the other hand, have authority over respective members of their teams relative to the project execution.

The responsibilities of managers in a Matrix Structure are further clarified below.

EXAMPLES OF MANAGEMENT RESPONSIBILITIES IN A MATRIX STRUCTURE

EXAMPLES OF MANAGEMENT ACCOUNTABILITY IN A MATRIX STRUCTURE

Project Managers are accountable to the company's president for the profitability of their projects. This is similar to the relationship which exists between the divisional manager and the president in a divisional structure.

ADVANTAGES AND DISADVANTAGES OF A MATRIX STRUCTURE

A Matrix Structure is particularly useful for companies engaged in various types of projects. This structure provides the organization with the advantages of both functional and divisional methods of departmentalization. One of the prime disadvantages of this structure, however, is frequent confusion among employees as a result of receiving instructions from two superiors.

In order to ensure effective performance of a Matrix Organization, it is essential to coordinate all efforts between functional and divisional managers on a continuous basis.

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