No single formula for departmentation applies to all situations. The following criteria may help the organization planner:
1. Similar activities may be grouped together, based upon likeness of personal qualifications or common purpose, for example, medical and dental personnel.
2. An activity may be grouped with other activities with which it is used, for example, safety with production.
3. Functions may be assigned to that executive who is most interested in performing them well.
4. Activities may be grouped to encourage competition among departments or to avoid friction among departments.
5. If it is difficult to make definite distinctions between two activities, they may be grouped together.
6. Certain functions require close coordination and, if separated, would increase problems of higher level managers; in this case, such functions should be grouped together.
The concept of decentralization has been an important organizing principle, especially in large corporation. However, the concept has been confused by the use of the term to describe ideas. Often it refers to operations at different geographical locations. In this sense, decentralization describes physical characteristics of a company but does not indicate the type of organization structure used.
Decentralization as an organizing concept refers to the process of pushing decision making to lower levels of the organizing. It is closely related to the delegation of authority to the broader base of executives who are at the lower levels of the hierarchy. Decentralization is a matter of degree. Basic decisions and policies must receive attention at the top levels. Although delegation is generally recognized as an important art by most operating executives, in practice delegation significant costs and risks. Two important considerations determine the degree of decentralization determine the degree of decentralization desirable in a given situation. First, the amount of skills and competence possessed by subordinate executives influences the success of any program of decentralization. Executives must be developed who can adequately handle the decisions delegated to them. Second, the distribution of the necessary information to points of decision is critical to any delegation process. Unless an executive has sufficient information available for a decision, he will have little chance to make a good decision.
Decentralization is not universally good. It may be preferable for Firm A but disastrous for Firm B. If speed in making decisions is important, decentralization of decisions may be desirable. Divisions along product lines have proved to be desirable for many large multi-product firms.
The traditional theory organization has received systematic treatment by many thinkers in management. Max Weber stands out as developer of a model of formal organization structure. Weber, in his historical study of social behavior, noticed three influences on organizational behavior: (1) the traditional taboos of society, (2) personal leadership of the great men (which he called charisma), and (3) the concept of bureaucracy.