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Departmentalisation

New business owners do not ask themselves how they should organize their business. Rather, they organize by objective:
What does it take to get a job done, meet a goal or create wealth?
How owners organize a company depends on a multitude of factors: for example, are certain tasks performed in-house or outsourced?
Are people (staff and management) with the necessary skills available?

As the business grows, its organizational structure is heavily influenced by:
- function (people grouped with similar responsibilities),
- process (people involved in similar processes),
- product (people building a specific product) or
- projects (members of a project).

A firm's structure might be influenced by some or all of these types of departmentation. Large firms usually employ a variety of departmentation styles, selecting the most appropriate form for each subsystem.

Departmentation by function

Grouping activities by function is the most widely used form of departmentation. Similar activities are housed in a department or under a single chain of command. For example, sales, advertising, public relations, and promotion might be grouped in a marketing department; employee benefits, employee training and employee regulatory compliance may be housed in the human relations department and so on.

Departmentation by function

Departmentation by process

The process or equipment used in producing a product or service may be the basis for determining departmental units. Since a certain amount of expertise or training is required to handle complicated processes or complex machinery, activities that involve the use of specialized equipment may be grouped into a separate department. This form of departmentation is similar to functional departmentation.

Departmentation by process

Departmentation by product

Project organizations are specifically designed to deal with changing environments. A project in this sense is a series of related activities required to accomplish a work outcome, such as the development of a new product. Projects and task forces or teams are generally unique-designed to work on a nonrecurring project. They are tightly organized units under the direction of a manager with broad powers of authority.

Departmentation by product

Departmentation by matrix

Some firms are organized by using a mix of departmentation types (matrix organization). It is not unusual to see firms that utilize the function and project organization combination. The same is true for process and project as well as other combinations. For instance, a large hospital could have an accounting department, surgery department, marketing department, and a satellite center project team that make up its organizational structure.

Span of Control

Once the bases for departmentation are determined, another problem of structure immediately arises concerning how many departments or how many individual workers should be placed under the direction of one manager. This is referred to as a span of management or span of control issue.

A number of factors should be considered when deciding upon a span of control:

the complexity of the subordinates’ jobs and need for interaction with management
the complexity of the supervisors’ jobs
the competence of the supervisors and subordinates the number and nature of the supervisors’ other interactions with non-subordinates
the extent to which staff assistants provide support.