Types of Departmentalization

Departmentalization is the clustering of individuals into units and of units into departments in order to facilitate the achievement of organizational goals.

Departmentalization is a logical way of creating groups small enough that someone can manage them. More significantly, it is a basic way of bringing together employees whose work is related.

There are, of course, many ways in which employees’ work can be seen as related — they serve the same customers, provide one another with inputs, sell the same product, and so on — so departmentalization provides managers with an important means of strengthening the coordination among employees where the impact on competitive advantage will be greatest.

Four of the most commonly used patterns of departmentalization are:

  1. Functional
  2. Divisional
  3. Hybrid, and
  4. Matrix.

Functional Departmentalization

When departmentalization involves grouping employees according to the organization’s functions, it is called functional departmentalization. The figure below shows a firm organized by functional departmentalization.

departmentation_by_function.jpg Figure I. Functional Departmentalization

The functional structure Opens in new window groups position into units on the basis of similarity of expertise, skills and work activities. The major advantages and disadvantages of a functional structure are given below:

Advantages & Disadvantages of Functional Departmentalization
  • In-depth development of expertise.
  • Clear career path within function.
  • Efficient use of resources.
  • Possible economies of scale.
  • Ease of coordination within function.
  • Potential technical advantage over competitors.
  • Slow response time on multifunctional problems.
  • Backlog of decisions at top of hierarchy.
  • Bottlenecks due to sequential tasks.
  • Restricted view of organization employees.
  • Inexact measurement of performance.
  • Narrow training for potential managers.
Sources: Kathryn M Bartol and David C Martin, ” Management”, McGraw Hill Inc, New York (1991), Page 372.

Divisional Structure

The organization’s other broad choice is to use divisional departmentalization, which groups employees according to some characteristic of markets or operations.

Divisional structure is a type of departmentalization in which positions are grouped according to the similarity of products, services or markets.

The figure below shows the divisional structure.

Within a division structure, each division contains the major functional resources it needs to pursue its own goals with little or no reliance on other divisions.

Divisional structures are sometimes referred to as self-contained structures because the major functions are generally contained within each division. With departmentalization, the organization may group employees in one of the three ways: product line, customer group, or geographic location.

  1. Departmentalization according to product line: Departmentalization according to product line is attractive to big organizations because functional managers can readily supervise functional work groups within each division and the division structure promotes coordination among the functions.

    In a divisional structure, each product department has its own functional specialists, in areas such as marketing, manufacturing and personnel who perform work associated with the product or products of their specific division only.
  2. Division by Product Line Figure II. Division by Product Line
  3. Departmentalization according to location of operations: Departmentalization according to location of operations is appropriate when operations or marketing activities are widely dispersed on customer needs and tastes vary according to geographic locations.

    Division by Geographic Location Figure III. Division by Geographic Location
    Geographic divisions are divisions designed to serve different geographic areas. Geographic departmentalization often is adopted when it is important to provide products and services that are tailored to the needs of different geographic areas.
  4. Departmentalization according to customer groups: Departmentalization according to customer groups makes sense when the organization’s customers fall into several categories with distinct needs.

Customer divisions are divisions set up to serve particular types of clients or customers.

customer-departmentalization Figure IV. Division by Customer

This type of organization design is used mainly when there are major differences among types of customers that preclude adequate coordination of the customers’ various needs within a standard functional structure. As a result, each department contains individuals who perform the necessary functions for a specific type of customer.

Choice of Departmentalization

Each type of departmentalization provides a different strength. Because functional departmentalization groups together specialists working on a similar type of activity, it is efficient, and the departments are relatively easy to manage.

Divisional departmentalization, in contrast, provides a degree of flexibility by encouraging employees from various functional areas to adapt their work to the needs of their product, customer group or geographic area.

Hybrid Structure

Hybrid structure is a form of departmentalization that adopts parts of both functional and divisional structures at the same level of management. It attempts to incorporate many of the major advantages of functional as well as divisional departmentalization. The figure below shows the hybrid structure.


Figure V.   A Hybrid Structure of a Chinese Firm

The major advantages and disadvantages of a hybrid structure are given below:

Advantages & Disadvantages of Hybrid Structure
  • Allows organization to achieve adaptability and coordination in product divisions and efficiency in centralized functional departments.
  • Results in better alignment between corporate and division-level goals.
  • Achieves coordination both within and between product lines.
  • Leads to conflict between corporate departments and divisions.
  • Excessive administrative overheads
  • Slow response to exceptional situations.

Uses of Hybrid Structure

A hybrid structure tends to be used in organizations that not only face considerable environmental uncertainty that can best be met through a divisional structure but also require functional expertise and/or efficiency.

Matrix Structure

Some organizations have tried to overcome limitations of product and divisional departmentalization by combining them in a matrix structure. The figure below shows a matrix structure.

chiasmus diagram showing abba pattern

As the figure shows, the organization has traditional functional departments (columns of the matrix), and each employee belongs to one of those departments.

The organization also assigns product managers to lead projects involving each of the functional areas (the rows of the matrix). Thus, members of the functional departments are assigned to work on the projects under the direction of product managers. In most cases, the matrix design is used for only a part of an organization.

Matrix Stages

Stanley M Davis and Paul R Lawrence suggest that organizations adopting a matrix structure usually go through several identifiable structural stages:

  1. Stage I is a traditional structure (usually a functional structure) which follows the unity-of-command principle.
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  3. Stage II is a temporary overlay, in which managerial integrator positions are created to take charge of particular projects (e.g., project managers), oversee product launches (e.g., product managers), or handle some other issue of finite duration that involves coordinating across functional departments.
  4. Stage III is a permanent overlay, in which the managerial integrator positions operate on a permanent basis (e.g., a brand manager coordinates issues related to a brand on an ongoing basis).
  5. Stage IV is a mature matrix in which matrix bosses have equal powers.
Advantages and Disadvantages of Matrix Structure
  • Gives room for coordination necessary to meet dual demands from environment
  • Flexible sharing of human resources across products.
  • Suited to complex decisions and frequent changes in unstable environment.
  • Provides opportunity for functional and product skill development.
  • Best in medium-sized organizations with multiple product.
  • Causes participants to experience dual authority which can be frustrating and confusing.
  • Often subjects participants to good interpersonal skills and extensive training.
  • It is time-consuming; it involves frequent meetings and conflict resolution sessions.
  • Will not work unless participants understand it and adopt collegial rather than vertical-type relationships.
  • It requires dual pressure from environment to maintain power balance.

Uses of Matrix Structure

Matrix designs are not necessary for many organizations; they are usually appropriate when the following conditions exist:

  1. There is considerable pressure from the environment that necessitates a simultaneous and strong focus on both functional and divisional dimensions.
  2. The demands placed on the organization are changing and unpredictable, making it important to have a large capacity for processing information and coordinating activities quickly.
  3. There is pressure for shared resources.

Regardless of the organization design, managers typically need to take further steps to achieve the vertical and horizontal coordination that makes a structure effective.