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was advocated by the early writers. The method or CHAPTER 6 • Organizational Structure and Design 187
methods used would reflect the grouping that best
contributed to the attainment of the goals of the
organization and the individual units.

How are activities grouped?

1. One of the most popular ways to group activities
is by functions performed, or functional depart-
mentalization. A manager might organize the
workplace by separating engineering, account-
ing, information systems, human resources,
and purchasing specialists into departments.
Functional departmentalization can be used in
all types of organizations. Only the functions
change to reflect the organization’s objectives
and activities. The major advantage to functional
departmentalization is the achievement of econ-
omies of scale by placing people with common
skills and specializations into common units.
2. Product departmentalization focuses attention AFP/Newscom
on major product areas in the corporation. Each product is under the authority of a senior Lacing is one of 13 separate tasks involved
in hand-crafting a Wilson Sporting Goods
manager who is a specialist in, and is responsible for, everything having to do with his or football. The company uses work specializa-
her product line. One company that uses product departmentalization is Nike. Its structure tion in dividing job activities as an organizing
is based on its varied product lines, which include athletic and dress/casual footwear, mechanism that helps employees boost their
productivity and makes efficient use of work-
sports apparel and accessories, and performance equipment. If an organization’s activi- ers’ diverse skills.
ties were service related rather than product related, each service would be autonomously
grouped. The advantage of product grouping is that it increases accountability for product
performance, because all activities related to a specific product are under the direction of
a single manager.
3. The particular type of customer an organization seeks to reach can also dictate employee
grouping. The sales activities in an office supply firm, for instance, can be divided into
three departments that serve retail, wholesale, and government customers. A large law
office can segment its staff on the basis of whether it serves corporate or individual cli-
ents. The assumption underlying customer departmentalization is that customers in each
department have a common set of problems and needs that can best be met by specialists.
4. Another way to departmentalize is on the basis of geography or territory—geographic
departmentalization. The sales function might have western, southern, Midwestern, and
eastern regions. If an organization’s customers are scattered over a large geographic area,
this form of departmentalization can be valuable. For instance, the organization struc-
ture of Coca-Cola reflects the company’s operations in two broad geographic areas—the

Exhibit 6–2 Types of Departmentalization

functional
• Functional Groups employees based on work performed (e.g., engineering, departmentalization
accounting, information systems, human resources) Grouping activities by functions performed
• Product Groups employees based on major product areas in the corporation product departmentalization
(e.g., women’s footwear, men’s footwear, and apparel and accessories) Grouping activities by major product areas
• Customer Groups employees based on customers’ problems and needs customer
(e.g., wholesale, retail, government) departmentalization
• Geographic Groups employees based on location served (e.g., North, South, Grouping activities by customer
Midwest, East) geographic
• Process Groups employees based on the basis of work or customer flow departmentalization
(e.g., testing, payment) Grouping activities on the basis of geography
or territory