Once you’ve divided jobs up through work specialization, you need to group these jobs together so that common tasks can be coordinated. The basis by which jobs are grouped together is called departmentalization.

One of the most popular ways to group activities is by functions performed. A manufacturing manager might organize his or her plant by separating engineering, accounting, manufacturing, human resources, and supply specialists into common departments.

Of course, departmentalization by function can be used in all types of organizations. Only the function change to reflect the organization’s objectives and activities. A hospital might have departments devoted to research, patient care, accounting, and so forth. A professional football franchise might have departments entitled Players Personnel, Ticket Sales, and Travel and Accommodations. The major advantage to this type of grouping is obtaining efficiencies from putting like specialists together. Functional departmentalization seeks to achieve economies of scale by placing people with common skills and orientations into common units.

Jobs can also be departmentalized by the type of product the organization produces. Johnson & Johnson, for instance, is organized along these lines. Each major product—such as Acuvue, Neutrogena, Tylenol, and Band-Aid – is placed under the authority of an executive who has complete global responsibility for that product.

The major advantage to this type of grouping is increased accountability for product performance, since all activities related to a specific product are under the direction of a single manager. If an organization’s activities are service rather than product-related each service can be autonomously grouped. For instance, Automatic Data processing has departments for each of its employer-provided services—payroll, retirement, expense management, tax, and the like. Each offers a common array of services under the direction of a product or service manager.

Process departmentalization can be used for processing customer as well as products. If you’ve ever been to a state motor vehicles office to get a driver’s license, you probably went through several departments before receiving your license. In one state, applicants must go through three steps each handled by a separate department:

1. Validation by motor vehicles division.
2. Processing by the licensing department and
3. Payment collection by the treasury department

A final category of departmentalization is to use the particular type of customer the organization seeks to reach.

Microsoft, for instance, is organized around four customer markets: Consumers, large corporations, software developers and small businesses. The assumption underlying customer departmentalization is that customers in each department have a common set of problems and needs that can be best met by having specialists for each.

Large organizations may use all of the forms of departmentalization that we’ve described. A major Japanese electronic firm, for instance, organizes each of its divisions along functional lines and its manufacturing units around processes; it departmentalizes sales around seven geographic regions, and divides each sales region into four customer groupings.

Across organizations of all sizes, one strong trend has developed over the past decade. Rigid and functional departmentalization is being increasingly complemented by teams that cross traditional departmental lines. As tasks have become more complex and more diverse skills are needed to accomplish those tasks, management has turned to cross-functional teams.

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