© 2008 Weihrich and Cannice Chapter 8. Organizational Structure: Departmentation 1

MANAGEMENT: A GLOBAL AND ENTREPRENEURIAL PERSPECTIVE by Weihrich, Cannice, and Koontz

Organization Structure: Departmentation

Chapter

8

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After studying this chapter, you should understand:

1. The basic patterns of traditional departmentation and their advantages and disadvantages.

2. Matrix organizations.

3. Strategic business units.

4. Organization structures for global enterprises.

5. The virtual and boundaryless organizations.

6. That there is no single best pattern of departmentation.

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Departmentation by Enterprise Function

• Most widely employed basis for organizing activities and is present in almost every enterprise at some level in the organization structure.

• No generally accepted terminology for functional departments: A manufacturing enterprise employs the terms “production,” “sales,” and “finance;” a wholesaler is concerned with such activities as “buying,” “selling,” and “finance;” and a railroad is involved with “operations,” “traffic,” and “finance.”

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Fig. 8-1 Departmentation by Enterprise Function

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Departmentation by Territory or Geography

• Rather common in enterprises that operate over wide geographic areas.

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Fig. 8-2 Departmentation by Territory or Geography

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Fig. 8-3 Departmentation by Customers

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Fig. 8-4 Departmentation by Product

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Matrix Organization

• The combining of functional and project or product patterns of departmentation in the same organization structure.

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Fig. 8-5 Matrix Organization (in engineering)

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Guidelines for Making Matrix Management Effective

1. Define the objectives of the project or task.2. Clarify the roles, authority, and responsibilities of managers

and team members.3. Ensure that influence is based on knowledge and

information, rather than on rank.4. Balance the power of functional and project managers.5. Select an experienced manager for the project who can

provide leadership.6. Undertake organization and team development.7. Install appropriate cost, time, and quality controls that report

deviations from standards in a timely manner.8. Reward project managers and team members fairly.

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Strategic Business Units (SBUs)

• Distinct little businesses set up as units in a larger company to ensure that a certain product or product line is promoted and handled as though it were an independent business.

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Fig. 8-6 Strategic Business Units

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Organization Structures for the Global Environment

• Organization structures differ greatly for enterprises operating in the global environment.

• The kind of structure depends on a variety of factors, such as the degree of international orientation and commitment.

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The Virtual Organization

• A rather loose concept of a group of independent firms or people that are connected often through information technology.

• These firms may be suppliers, customers, and even competing companies.

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Boundaryless Organization

• Jack Welch, former CEO at GE (General Electric), stated his vision for the company as a boundaryless company, an “open, anti-parochial environment, friendly toward the seeking and sharing of new ideas, regardless of their origin.”

• The purpose was to remove barriers between the various departments as well as between domestic and international operations.

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Choosing the Pattern of Departmentation

• There is no one best way of departmentation that is applicable to all organizations and all situations.

• Managers must determine what is best by looking at the situation they face.– The jobs to be done and the way they should be

done– The people involved and their personalities – The technology employed in the department – The users being served– Other internal and external environmental factors

in the situation

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KEY IDEAS AND CONCEPTS FOR REVIEW

• Departmentation by enterprise function

• Departmentation by territory or geography

• Departmentation by customer group

• Departmentation by product

• Matrix organization (or grid, or project, or product)

• Strategic business unit• Organization structures

for global enterprises• Virtual organization• Boundaryless

organization