350 Part 4 Organizing

Exhibit 11-3
The Five Common Forms of Departmentalization
FUNCTIONAL DEPARTMENTALIZATION—Groups Jobs According to Function

Plant Manager

Manager, Manager, Manager, Manager, Manager,

Engineering Accounting Manufacturing Human Resources Purchasing

+ E ciencies from putting

puttin together similar specialties
pecia
ialties and
people with common skills, knowledge, and orientations
+ Coordination within functional area
+ In-depth specialization
– Poor communication across functional areas
– Limited view of organizational goals
GEOGRAPHICAL DEPARTMENTALIZATION—Groups Jobs According to Geographic Region
Vice President
for Sales

Sales Director, Sales Director, Sales Director, Sales Director,

Western Region Southern Region Midwestern Region
M Eastern Region

+ Morre e ective and e cient handling

More hanndlin
ng of specific regional
issues that arise
+ Serve needs of unique geographic markets better
– Duplication of functions
– Can feel isolated from other organizational areas

PRODUCT DEPARTMENTALIZATION—Groups Jobs by Product Line

Source: Bombardier Annual Report.
Bombardier, Ltd.

Mass Transit Recreational and Rail Products

Sector Utility Vehicles Sector Sector

Mass Transit Bombardier–Rotax Rail and Diesel

Division (Vienna) Products Division

Recreational Products Logistic Equipment Industrial Equipment Bombardier–Rotax

Division Division Division (Gunskirchen)

+ Allo
Allows specialization in particular
arr products and services
+ Managers can become experts in their industry
+ Closer to customers
– Duplication of functions
– Limited view of organizational goals

PROCESS DEPARTMENTALIZATION—Groups Jobs on the Basis of Product or Customer Flow functional

Plant
Superintendent

Planing Lacquering Inspection

Sawing Assembling Finishing
Department and Milling Department and Sanding Department and Shipping
Manager Department Manager Department Manager Department
Manager Manager Manager

+ More e cient flow of work activities

activitties
– Can only be used with certain types of products

CUSTOMER DEPARTMENTALIZATION—Groups Jobs on the Basis of Specific and Unique Customers

Who Have Common Needs
Director
of Sales

Manager, Manager, Manager,

Retail Accounts Wholesale Accounts Government Accounts

+ Customers’ needs
eds and problems can be met by
y specialists
sp
pecialists
– Duplication of functions
– Limited view of organizational goals
 Chapter 11 Designing Organizational Structure 359

of an organic design. For example, the uncertain nature of the commercial air travel
industry means that airlines need to be exible. Several mergers reduced the number of
major airlines from nine to four. For instance, United and Continental merged in 2010
and American acquired US Airways in 2015. Combining airlines reduced the number
of competitors and pressures to continually lower airfares.39 The merged companies
also were able to streamline corporate structure and operations.
The evidence on the environment–structure relationship helps explain why so
many managers today are restructuring their organizations to be lean, fast, and ex-
ible. Worldwide economic downturns, global competition, accelerated product inno-
vation by competitors, and increased demands from customers for high quality and
faster deliveries are examples of dynamic environmental forces. Mechanistic organiza-
tions are not equipped to respond to rapid environmental change and environmental
uncertainty. As a result, we’re seeing organizations become more organic.

If your professor has assigned this, go to www.mymanagementlab.com to complete the

Simulation: Organizational Structure and get a better understanding of the challenges Try It!
of designing appropriate organizational structures.

TRADITIONAL organizational design options

They’re a big hit with the elementary-school crowd, and millions of
LO11.4 them were sold every month. Ever heard of Silly Bandz?40 If you’re over
the age of 15, you probably haven’t! These colorful rubber bands retain the shapes
they’re twisted into, and kids love them. The small business that created Silly Bandz—
BCP Imports of Toledo, Ohio—increased its employee count from 20 to 200 and
added 22 phone lines to keep up with inquiries. The person behind those organizing
decisions is company president Robert Croak. In making structural decisions, manag-
ers have some common designs from which to choose. In this chapter, we’re describing
the traditional organizational designs and more contemporary types of organizational
designs.
When designing a structure, managers may choose one of the traditional organi-
zational designs. These structures tend to be more mechanistic in nature. A summary
of the strengths and weaknesses of each can be found in Exhibit 11-8.

Simple Structure
Most companies start as entrepreneurial ventures using a simple structure, an orga- simple structure
nizational design with little departmentalization, wide spans of control, authority cen- An organizational design with little
tralized in a single person, and little formalization.41 As employees are added, however, departmentalization, wide spans of
control, centralized authority, and little
most don’t remain as simple structures. The structure tends to become more special- formalization
ized and formalized. Rules and regulations are introduced, work becomes special-
ized, departments are created, levels of management are added, and the organization
becomes increasingly bureaucratic. At this point, managers might choose a functional
structure or a divisional structure.

Functional Structure
A functional structure is an organizational design that groups similar or related functional structure
occupational specialties together. You can think of this structure as functional depart- An organizational design that groups
together similar or related occupational
mentalization applied to the entire organization.
specialties

Divisional Structure
The divisional structure is an organizational structure made up of separate busi- divisional structure
ness units or divisions.42 In this structure, each division has limited autonomy, with a An organizational structure made up
division manager who has authority over his or her unit and is responsible for perfor- of separate, semiautonomous units or
divisions
mance. In divisional structures, however, the parent corporation typically acts as an
360 Part 4 Organizing

Exhibit 11-8
Traditional Organizational Designs STRENGTHS WEAKNESSES

Fast;
Simple Not appropriate as
flexible;
Structure organization grows;
inexpensive to maintain; reliance on one person
clear accountability. is risky.

Cost-saving advantages
Functional Pursuit of functional goals can
from specialization
Structure cause managers to lose sight
(economies of scale, minimal of what’s best for the overall
duplication of people and organization; functional
equipment); employees are specialists become insulated
grouped with others who and have little understanding
have similar tasks. of what other units are doing.

Focuses on results—division
managers are responsible
for what happens to their
products and services.
Divisional Duplication of activities and
Structure resources increases costs and
reduces efficiency.

external overseer to coordinate and control the various divisions, and often provides
support services such as nancial and legal. Walmart, for example, has two divisions:
retail (Walmart Stores, International, Sam’s Clubs, and others) and support (distribu-
tion centers).
As you’ve seen in this chapter, organizational structure and design (or redesign)
are important managerial tasks. Also, we hope that you recognize that organizing deci-
sions aren’t only important for upper-level managers. Managers at all levels may have
to deal with work specialization or authority or span-of-control decisions. Later in
this chapter, we’ll continue our discussion of the organizing function by looking at
contemporary organizational designs.

ORGANIZING for flexibility

in the twenty-first century
Many organizations are nding that traditional organizational designs
LO11.5 often aren’t appropriate for today’s increasingly dynamic and complex
environment. Instead, organizations need to be lean, exible, and innovative; that is,
they need to be more organic. So managers are nding creative ways to structure and
organize work.

team structure
An organizational structure in which the
entire organization is made up of work
teams
Team Structures
Larry Page and Sergey Brin, cofounders of Google, created a corporate structure
that organized projects around “small, tightly focused teams.”43 A team structure is
one in which the entire organization is made up of work teams that do the organiza-
tion’s work.44 In this structure, employee empowerment is crucial because no line of