Question

A fundamental characteristic of organization structure is departmentalization, which is the basis for grouping positions 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. Write a short essay that describes and compares and contrasts the advantages and disadvantages of two approaches—the functional approach and the divisional approach—to departmentalization. In most instances, which do you think would be the preferred approach, and why?

Answer 1

Departmentalization is a process of classifying and grouping various functions and positions in accordance with product/services or customers.This helps in proper allocation of responsibility and accountability. Moreover, makes the organization structure easy and promotes smooth and faster decision making.

The two major approaches to departmentalization is-

1. Functional approach - Under this, the organizational functions are the basis of grouping. Departments are mae on the basis of jobs like - Marketing, production, finance, human resources, etc. It helps the organization to staff experts in the respective field to the department accordingly, thus promoting coordination, centralization and integration. It was also termed as 'U-form' for unitary design by the economist Oliver E. Williamson. This is the most common approach especially among small and medium sized companies

2. Divisional departmentalization - This approach classifies all the organizational activities under various products/service. Product departmentalization is used when the company deals in many products/services and is operative in different markets and regions. All the activities in an organisation are grouped under one of the product/service and is managed by one manager.

Functional structure provides a clear image of authority, responsibility and accountability. This increases efficiency in the process and avoid duplication. The hierarchy makes it easy to identify the promotional paths and alsp motivates the employees. Moreover, communication within one department is effective and efficient and so each department works together and brings out good results.

In divisional, employees having different skill set work together under one head for one product/service. This solves the problem of inter departmental communication and promotes innovation and learning. Since, all the functions work together it makes it easy to gather resources and funding for the project accordingly.

A company's nature of operations decides the type of departmentalization it should adopt. Firms having a single product may go for functional approach, because they have only one project to focus on. Whereas, companies with diverse range of product/services can opt for divisional departmentalization to focus on all of their products individually.