Businesses divide operations into departments, each of which is responsible for completing specific tasks. By grouping employees and related functions into departments, the company more efficiently achieves some operational objectives. However organizing by function, product, customer or geography has its disadvantages, as well.
Disadvantages of Functional Departmentalization
Functional departmentalization organizes a company according to the business functions employees perform, such as sales, production and finance. P. Montana writes in "Organizational Structures: Concepts and Formats" that functional departmentalization creates problems because people sometimes become focused on particular functions rather than the overall business. As a result, interdepartmental coordination may be difficult, which can complicate decision-making processes. Equally important, employee development may be limited to the work of one functional department, resulting in managers with limited experience and expertise, which can negatively affect customer satisfaction.
Disadvantages of Product Departmentalization
Product departmentalization organizes work and employees around the products or services the company produces. For example, an automobile manufacturer might organize around the brands in its product line, while a clothing manufacturer might organize around women's clothing, men's clothing and children's clothing. Montana states that product departmentalization can result in duplication of effort and redundant and underutilized resources, both of which negatively affect the company's performance. In addition, Ellen Auster writes in "Strategic Organizational Change: Building Change Capabilities in Your Organization" that this organizational structure often results in the poor exchange of information and coordination between product lines and a lack of employee functional specialization, which might inhibit innovation within product lines.
Disadvantages of Customer Departmentalization
Companies that implement customer departmentalization organize work processes around categories of customers, which have unique marketing requirements. For example, departments may include retail customers and wholesale customers or health care, government, and education nonprofit customers. Like product departmentalization, customer departmentalization leads to departmental duplication of efforts and redundant and underutilized resources, which negatively affect the company's performance. Customer departmentalization also results in a lack of coordination between departments, which may lead to optimized department revenues but decreased company revenues.
Disadvantages of Geographic Departmentalization
A company that structures employees and processes according to geographic areas practices geographic departmentalization. Austere points out that disadvantages of geographic departmentalization include a duplication of human, structural, and production resources and services, which negatively affect a company's operational performance. Geographic departmentalization may also lead to expatriation and repatriation issues, such as culture shock and intercultural team building and costs, and tensions between the parent company and its subsidiaries.
- University of Houston-Victoria: Chapter 9: Designing Adaptive Organizations
- Management Fundamentals: Concepts, Applications, Skill Development; Robert N. Lussier
- University of North Carolina: Chapter 11: Organizational Structures: Concepts and Formats
- Fundamentals of Management; Ricky W. Griffin
- Strategic Organizational Change: Building Change Capabilities in Your Organization; Ellen Auster, et al.
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