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Chapter No 4
Organization Structure

Department : Important divisions or branches of Government,

Business, College …
Departmentation : Process of grouping similar nature of activities
into one group and giving it name of a department. There is no single
best form of departmentation applicable to all organizations or to all
situations. The pattern will depend on the given situation and
Manager’s belief
Departmentation by Functions Grouping of activities according to
the functions of an enterprise such as Designing, Production, Sales,
Finance etc
Basic Enterprise Functions :
Production (Creating /adding utility to products /service)
Selling (Finding customers, clients etc who accept
product or service at a price or a cost)
Financing (Raising, collecting, safeguarding and
expending funds
Departmentation by Functions
Basic designations may not appear on Org charts
No generally accepted terminology
Manufacturing … production, sales, finance
Wholesaler … buying, selling, finance
Railroad … operation, traffic, finance
Difference in importance of basic activities
Hospitals … no production department
School … no sales department
Activities could be there but are combined with others
Deliberate selection of other methods
Logical reflection of functions
Maintains power and prestige of major functions
Follows principles of occupational specialization
Simplifies training
Furnishes means of tight control at the top

De-emphasizes overall company objectives

Overspecializes & narrows view points of key personnel
Reduces coordination between functions
Responsibility for profit is at the top only
Slow adaptation to change in the environment
Limits development of general managers
Departmentation by Geography
Grouping of activities by area or territory
Specially attractive to big organizations whose activities are
physically or geographically dispersed ( Armed forces, Banks, Courts,
Educational institutions, Postal services
Places responsibility at a lower level
Places emphasis on local markets and problems
Improves coordination in a region
Takes advantage of economies of local operations
Better face to face interaction with local interests
Furnishes measurable training ground for general managers
Requires more persons with general manager’s abilities
Tends to make maintenance of economical central services
difficult and may require services such as personnel for
purchasing at the regional level
Makes control more difficult for top management
Departmentation by Customer Group
Grouping of activities reflecting primary interest in customers
Customers are the key to group the activities : Business owners,
Managers , Educational institutions
Departmentation by Customer Group
• Encourages focus on customers needs
• Gives customers the feeling that they have an understanding
supplier (Banker)
• Develops expertness in customers area
• Requires managers / staff expert in customers’ problems
• May be difficult to coordinate operations between competing
customers demands
• Customers’ groups may not always be clearly defined

Departmentation by Product
Grouping of activities according to products or product lines
especially in multi-line or large enterprises
Departmentation by Product
Growth of firms
Growth of management functions
Growth of problems
Complexity of managerial function
Distribution / delegation of responsibility
Practice is growing in importance in multi-line large scale enterprises
Places attention and effort on product line
Facilitates use of specialized capital facilities, skills &
Permits growth and diversity of products and services
Improves coordination of functional activities
Places responsibility for profits at the division level
Furnishes measurable training ground for general managers
• Requires more personnel with general managers’ abilities
• Tend to make maintenance of economic central services
• Presents increased problems for top management control
Department by Simple Number
• Grouping people into different sections for admin purpose
• People perform some duties
• This type of departmentation is at the lowest level of
Departmentation by Time
• Grouping of activities on the basis of time
• Shift duties is a common practice in many organizations
• Advantages
• Service can be provided round the clock
• Process can used uninterrupted
• Expensive machines and building can be used for longer
• Disadvantages
• Lack of effective supervision at night
• Problem of coordination and control

• payment of overtime
Departmentation by Equipment
Grouping of activities around a process ,type of machine, equipment
Advantages Achievement of economics advantage, Use of
specialized technology, Simplifies training
Disadvantages Coordination of department is difficult , Lack of
development for general managers
Matrix Organizations
Combining of functional & project or product patterns of
departmentation in the same organization
Such organization occurs in :
• Construction … Building a bridge
• Aerospace … designing / launching a satellite
• Marketing … Advertising campaign
• Management Consulting Firms
Effective Matrix Management Guidelines
Define objective of project or task
Clarify roles, authority, responsibility to members
Ensure … influence is based on knowledge / information, rather
than on rank
Balance the power of functional & project managers
Select experienced manager to provide leadership for project
Undertake organizational & team development
Install appropriate cost, time & QC that report deviations from
standards in a timely manner
Reward project managers & team members fairly