Intro: Another fundamental characteristic of organization structure is

departmentalization, which is the basis for grouping positions into departments

and departments into the total organization. There are 5 approaches to structural
design: Functional, divisional, matrix, team & virtual network approach.

1. Vertical functional approach:

 What is it: In a functional structure, activities are grouped together
by common function from the bottom to the top of the organization.
The functional structure groups positions into departments based on
similar skills, expertise, work activities, and resource use.
 Exhibit 10.4.a tr. 317
(The major departments under the president are grouping of similar
expertise and resources, such as accounting, human resources,
production and marketing. The marketing department is responsible
for sales and marketing, for intance)
 How it works: Functional structures are known as centralized
structures. With a centralized structure, data is passed from the
functional level to top management. Top management collate and
analyze this data for planning, then feed this information down to
middle management, who implement the decisions
 The pros and cons:

Advantages Disadvantages
 Experience  Lack of variety & job
 Standardization enrichment
 Greater communication  Limits flair & ingenuity
 Economies of scale  Greater bureaucracy and
 Efficiency form filling
 Compromise on functional
requirements

2. Divisional approach:
 What is it: The divisional structure occurs when departments are
grouped together based on similar organizational outputs. Separate
 divisions can be organized with responsibility for products, services,
major projects or programs.
 Exhibit 10.4.b tr. 317
(Whereas in a functional structure, all R&D engineers are grouped
together and work on all products, in a visional structure, separate
R&D are created within each division. Each department is smaller
and focus on a single product line or customer segment.)
 How it works: Divisional structures are known as decentralized
organizations which spread responsibility for specific decisions
making across various levels, and the assignments would be resolved
at divisional level rather than by the president, thus freeing the
president and other top managers for strategic planning.
 The pros and cons:

Advantages
 Senior management time
freed up
 Greater local knowledge
 Motivation through
greater decision power
 Greater understanding
 Speed
Disadvantage
 Duplication of service/ cost
 Lack of specialization
 Extra processing
 Coordination more difficult

3. Matrix approach:
 What is it: The matrix approach combines aspects of both functional
and divisional structures simultaneously
 Exhibit 10.7 tr. 320
 How it works: The dual lines of authority make the matrix unique.
o Two- boss employees: report to two supervisors
simultaneously, work with senior managers to reach joint
decisions
o Matrix boss: is the product or functional boss, who is
responsible for one side of the matrix
 o The top leader: responsible for the entire matrix, oversees
both the product and functional chains of command.
 The pros and cons:

Advantages
 Effective in rapidly
changing environment
 Make use of human
resources
Disadvantages
 Have difficulty with the
dual reporting
relationships
 Spend great deal of time
coordinating meetings
and assignments.