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Disadvantages:

-- Functional departmentation is often found to be inadequate to meet the growing needs of the business, particularly as the organization expands or diversifies its activities;

-- Further, decision-making becomes slow as the functional managers have to get the approval of the headquarters;

-- It is also difficult to determine accountability in a functional structure. If a product fails, the question as to who is responsible cannot be easily answered; and

-- Functional managers tend to develop narrow perspective and loose sight of the bigger picture. Members of each department feel isolated from those in other departments. For example, manufacturing department may be obsessed with cost reduction and meeting the delivery dates neglecting the quality control. As a result, marketing department may be flooded with complaints.

Product/ Market Departmentation

As organizations are not static, they grow in size either by broadening its product line, or by expanding geographically. Further, as the size of the organization increases, some of the disadvantages become more apparent. The organization is rather forced to look for other models in tune with the requirements. In such situations, managements opt for various other types of departmentation, in order to have the right focus on the product or market or the process. Three patterns are adopted generally by organizations depending on the specific requirements to overcome the limitations of functional structure. They are product, territorial and customer departmentation.

i.Product Departmentation

One of the most common ways in which businesses grow is by expanding the product mix. If the organization is successful in expansion, several product lines may attain such high sales volume that each product category or line may be a separate division. Large organizations like Kirloskar, Hindustan Unilever, Godrej have managed such expansion of product lines effectively by creating separate departments or divisions for the various products. Under product departmentation, a single manager,

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often referred to as the product manager, is delegated authority over all activities required to produce and market that product. The focus in the product departmentation, therefore, shifts on to the product and all the activities related to the production and marketing of the product. As against functions in the functional departmentation, basic products or services become the primary or major departments in the product departmentation as could be seen in the following figure.

CHAIRMAN

MANAGING

DIRECTOR

Figure 9.6: Structure of Product Departmentation

Advantages:

-- Product departmentation places emphasis on the basic products, the success of which is critical to the survival of the organization;

-- Since all revenues and costs are assigned to a particular product, cost centres can be established. High profit areas can be encouraged and low/unprofitable product lines can be dropped. Thus, responsibility for cost reduction and profits can be established at the division level; -- Proper coordination of all functional areas can be achieved as all the functional managers work as a team under close supervision of the product manager. Since the department or division is multifunctional, it often operates like an independent division or

company within the large company;

-- Enables quick-response to changes in environment as compared to functionally organized firm;

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-- Provide managers a training ground in general management which is useful in overcoming narrow functional perspective; and

-- Expansion and diversification of business is made easy by creating new departments for the new products that are added to the existing business.

Disadvantages:

-- Requires adequate availability of persons with general management abilities as more and more departments are created for the various products;

-- The product departments may try to become too autonomous thereby making top management control difficult; and

-- It is also common to find product departments engaged in the duplication of efforts. Each product unit has its own functional departments. These may not be sufficiently large to make maximum use of facilities. Thus product departmentation becomes an expensive organizational form, if adopted without proper justification in terms of the products strengths and market potential.

ii. Customer Departmentation

It is common that some organizations sell a wide variety of goods or services that appeal to different groups of customers, each of which has distinguished needs. Each customer group may have to be addressed differently. In such a case, departments may be created around customer groups. For instance, commercial banks organize their activities around customer groups to cater to their specific needs. As such, we find separate departments or divisions for agricultural, industrial and merchant banking operations. Similarly, we find an air-conditioning company like Blue Star organizing its business around domestic and industrial air-conditioning units.

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Figure 9.7: Structure of Customer Departmentation

Advantages:

-- Customer departmentation facilitates concentration on customer needs. This is in line with the customer orientation professed by many organizations these days;

-- Customers feel that they have an understanding supplier. For example, the manufacturer may sell to wholesalers and industrial buyers. Wholesaler requires a product of dependable quality with assured supplies. The industrial buyer wants products of high quality plus a service that includes installation and repair of the product and specific training of the company’s employees; and

-- Helps the organization to get the correct feel of the market dynamics in terms of preferences of the customers, degree of competition, competitors’ strategies, etc.

Disadvantages:

-- Difficult to coordinate operations between competing customer demands;

-- Requires considerable expertise on the part of managers in understanding customers’ problems and specific needs; and

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-- There is a possibility of under utilization of facilities and employees specialized in terms of customer groups. Small organizations particularly cannot afford the expenditure involved because some amount of duplication of the facilities is inevitable.

iii. Territorial Depart mentation

The process of creating departments along the geographical areas that the enterprise serves is termed territorial depart mentation. This method is adopted when an organization operates in different geographical areas, each with distinct needs and dynamics. Territorial Depart mentation makes it easier for the organization to cope with variations in laws, local customs and customer needs. Public utilities like transport companies, insurance companies, etc., adopt territorial depart mentation. Similarly, a large scale organization operating both in domestic and international markets may have separate departments for both the markets. Again, different departments or divisions may be created for different regions of the world. Many multinational companies organize their global activities with regional headquarters in different regions of the world.

Figure 9.8: Structure of Territorial Depart mentation

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Advantages:

-- Territorial departmentation makes it possible to concentrate on markets and marketing channels in different geographical areas;

-- Develops opportunities for more efficient marketing activities because of better face-to-face communication with local stakeholders; and

-- Makes possible effective utilization of locally available resources besides being able to cater to the region specific variations in terms of preferences and sentiments of the people.

Disadvantages:

-- In this type of depart mentation, there are problems in training people to think in terms of markets rather than products;

-- Requires more persons with general managements abilities; and

-- Increases problem of top management control because of the distance between the corporate headquarters and the regional officers.

The three patterns of depart mentation discussed above – product, customer and territorial depart mentation broadly characterize the divisional structure. All the three patterns have advantages and disadvantages. The choice of any of these structures, therefore, would be based on which of the factors management judges to be more important and critical in the light of the strategies and objectives.

Project Organization

The use of the project form organization has increased in the last few years. It is currently being employed in numerous undertakings engaged in the execution of construction activities, turnkey projects and research and development projects. The project organization can take various forms, but the important characteristic that distinguishes it from other forms is: once the project is completed the organization is disbanded or phased out. By definition, project management involves, “the gathering of the best available talent to accomplish a specific and complex undertaking within time, cost and quality parameters, followed by the disbanding of the team upon completion of the undertakings”. The group members then go on to another project, return to their permanent home department in the organization, are given jobs elsewhere in the organization, or, in some cases, phased entirely out of the firm.

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The Matrix Structure

The matrix structure is a hybrid organization form, containing of characteristics of both project and functional structures. In consumer goods industries, it could contain the characteristics of both product and functional departments. This structure allows operational responsibilities to be divided into two parts. One part contains all the responsibilities associated with the management of an independent business and it’s given to an individual who is called “business manager” or “product manger”. The other part contains all the responsibilities related to the management of resources needed to get the job done. The person responsible for these is the “functional manager” or “resource manager” in charge of the functions like production, marketing, finance, personnel and so on. The matrix is built around a cooperative relationship between the project/ product manager and the functional/ resource manager. Thus, project staff members in a matrix structure have a dual responsibility. First, they are responsible to the head of their line superior and will continue to be so. But the project manager exercises what is called project authority over the project staff. Figure presents these dual responsibilities in a matrix form of organization.

Figure 2.9: Matrix Structure

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When the concepts of functional and project authority are brought together, the result is an organization structure that is both vertical and horizontal. The vertical pattern is brought about by the typical line authority flowing down from superior to subordinate. The horizontal authority flow runs through both the scalar principle.

Companies like Larsen & Tourbro (L&T), U.P. Construction Corporation, Afcons-Pauling, etc., adopt this structure for the execution of various projects. For instance, L&T’s construction of Jawaharlal Football Stadium in Chennai and Afcons-Pauling’s laying the East Coast Road are big projects themselves. The execution of such projects is entrusted to a team drawn from the functional departments of the headquarters. The overall responsibility for the project lies with project manager. The people who work in the project are responsible to the project manager as well as their functional head from whom they are drawn. The matrix may be temporary or permanent. In construction and turnkey activities, project is disbanded after the execution, whereas it may take a permanent form in the case of consumer goods company.

Advantages of Matrix Organization:

-- Specialized knowledge is available to all projects or products on an equal basis. Knowledge and experience can be transferred from one project to another;

-- Utilization of manpower can be flexible because a reservoir of specialists is maintained in functional departments. These specialists can be deployed to the various projects for optimum use of their services;

-- Responsibility for the overall execution, management, and profit is with the project manager who acts like a chief executive;

-- Project people have a functional home when they are no longer needed on a given projects; and

-- A better balance between time, cost and performance can be obtained through the built-in checks and balances and the continuous negotiations carried on between the project and the functional organization.

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Disadvantages:

Inspite of its advantages, matrix structure suffers from some disadvantages. Mangers have to learn to deal effectively with them.

-- If the organization has too many projects, the result may be severe layering of matrixes. Uncontrolled growth of matrix structures often results in power struggles between managers;

-- The major disadvantage relates to power struggles. Since use of the matrix means use of dual command, managers often end up in conflicts;

-- Matrix entails wide use of group decision making because group cooperation is required for success. The inevitability of group cooperation at times delays decision making; and

-- Matrix structure may be expensive. The dual chain of command may cause management costs to double.

Despite the drawbacks, matrix structure is preferred by many organizations because of the overriding advantages. In addition to construction and engineering, consumer goods, banking, insurance and computer companies are now using it. Variations of matrix are also used by hospitals and other professional organizations.

Contingency Organization Design

In contrast to the models discussed so far, several contingency systems of late have come into wider practice. The emphasis in these systems is on flexibility. Accordingly, so many flexible structures are adopted these days to meet the specific needs of the organizations. This approach basically led to the development of a contingency theory of organization. The approach is based on the exigencies of the situation. William F. Glueck, offers the following guidelines for contingency design:

-- When low cost and efficiency are the keys to successful goal achievement, organizations should use functional depart mentation;

-- When the environment is complex, matrix structure is effective;

-- If the organization is large and operates in a stable environment, it can afford a more formal or rigid structure;

-- The greater the intensity of competition, the greater will be the degree of decentralization;

-- The greater the volatility of the environment, the more decentralized

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and flexible the organization has to be; and

-- Companies that adopt the organizational structure appropriate to their strategy will be more effective than those that use an inappropriate style.

Review Questions

1.Drawing upon your personal experience as a student of management, give a few examples of chain of command.

2.“Organization chart provides a broad picture of positions of authority and their relationships in the organization structure”. Examine this statement.

3.What do you understand by levels in the organization? Examine the implications of too few and too many levels.

4.What do you mean by span of control? Examine the traditional as well as modern view points on the span of control.

5.What are the basic characteristics of functional depart mentation? Analyze its merits and demerits.

6.Suggest a method of depart mentation for a large multi-product organization with a huge market spread over the whole country. Explain the reasons for your suggestions.

7.Under what conditions Territorial depart mentation is preferred. Examine its advantages and disadvantages.

8.Explain the statement: “A matrix structure is a hybrid form of organization, containing characteristics of both product and functional structure”.

9.Do you agree with the view that there is no one best way of depart mentation applicable to all organizations? Substantiate your answer and explain what factors influence depart mentation.

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