Have you ever noticed that humans love to organize around things? Baseball teams, soccer teams, organizations at work, even bowling leagues—we all like to organize ourselves in one way or another. Well, it turns out that businesses are no different. After all, they’re made up of humans! This tutorial provides an overview of business organizations. Our discussion breaks down as follows:
1. Getting Organized
An organization is a person or group of people intentionally organized to accomplish a common goal or set of goals. Business organizations can range in size from one person in a sole proprietorship to huge organizations.
Organizations usually have the following characteristics:
- Vision
- Mission
- Values
- Strategic goals
- Strategy
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chain of command is the structure in which the command of a group is distributed from upper management to each employee. In this way, an organization can see how a command runs from the head of an organization on the top of the chain down to the person turning the wrench, sweeping the floor, and so on.
Job specialization is the practice of concentrating on a definitive area of knowledge in the workplace, allowing a worker to become very good at that particular job. Therefore, at least in theory, they can do that job more efficiently.
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Most people use an organizational chart to explain the chain of command. This will include people like the president and the vice president of the company, regional managers, and district managers.
There is also something called span of control, and this dictates how or what each person in that chain of command is responsible for. The span of control helps visualize job specialization, or what job or area each person is specializing in within the organization.
IN CONTEXT
Consider the chain of command for the Wikimedia Foundation by reviewing their organizational chart below. If you look at the top of the organizational chart, you’ll see the executive director and the deputy director. You can see how the chain of command runs from the executive directors down through the chief technology officer (CTO), developers, partnerships, volunteer coordination, CFOO, fundraising, business development, and so on, down to legal counsel.
Find Veronique Kessler on the organizational chart. She is the CFOO and that is her job specialization—she specializes in that area of the business.
Regarding the span of control, you’ll notice that the executive director, Sue Gardner, and the deputy director, Erik Moller, are at the top of the organization chart. Sue is in charge of the partnerships, the volunteer coordinator, the chapter coordinator, and the head of communications, along with the CFOO and the Legal Counsel. This would be Sue’s span of control.
Erik is in charge of the CTO directly, so that is Erik’s span of control. The CTO, in turn, has a span of control of the development team and the sysadmin folks—five people in total.
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It’s important to make sure you’re not getting too many people under your span of control; otherwise, things get incredibly busy.
You can also see the job specialization aspect of the chart. However, specializing in one job or one area can get a little boring after a while, basically, doing that one particular job all the time. Boredom and complacency can set in, and you may find that people suddenly don’t do that job quite as well. In this case, you may want to move people around or rotate those jobs to keep things more interesting for the employees.
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- Chain of Command
- The structure in which the command of a group is distributed from upper management to each employee.
- Job Specialization
- The practice of concentrating on a definitive area of knowledge in the workplace.
2. Departmentalization
Departmentalization is clustering employees into groups to work together in a specific division. Now, departmentalization can be split up among an organization in several different ways, and as we’re going to explore, there are pros and cons to each.
Product
This type is organized around a specific product, a group of products, or a product function, like selling stocks or selling a particular brand of bread, or bread in general.
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Pros: Decision-making is easy where you only have to worry about that one product or area.
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Cons: There is duplication of effort. Imagine having a separate product department for bread, hot dog buns, hamburger buns, and rolls. As you can see, there is a duplication of effort among different products that essentially share the same process for getting made and sold.
Process
This type is organized by the different processes that are performed.
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Pros: The process is streamlined, for example, baking is all under one department.
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Cons: There is duplication of equipment purchasing and use. You’re trying to buy equipment for each particular type of baking, which could lead to duplication of equipment and cost overruns.
Functional
This type is organized by the different purposes or functions, for instance, your “function” could be selling insurance, bread, or cars within an organization.
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Pros: There is easy coordination. All the bread folks go in one spot, all the car folks go in another spot, and so on. It’s easy to coordinate among the people within that one functional department.
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Cons: Decision-making is slow because now you have to consider everything within this big, functional department, for instance, baking or selling cars. Everything within that department has to slow down because you’re trying to make all those decisions through one chain.
Customer
This type is organized by the different customer types, for instance, people with varying spending capacities. Are your customers high rollers, or are they ones who don’t want to spend a lot, or are they the people who want to buy a particular type of product? These are all types of customers by which you might departmentalize your company.
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Pros: You can focus efficiently on unique customer groups. These are people that are actually interested in a particular type of product, for instance.
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Cons: More administrative staff is needed to keep up with all those different types of customers for a potentially few numbers of products.
Geographic
This type is organized by geographic location, as the name suggests. This categorization can be very large, for instance, everyone west of the Mississippi and everyone east of the Mississippi. Conversely, it can be very small, such as the Conway, Arkansas, office.
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Pros: This is more responsive to specific geographic needs. When you need a task to be done within that geographic area, you have people on the ground who can immediately respond to that need.
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Cons: This is a more elaborate administration style because you’re trying to cover a lot of different—literal—ground within the organization.
As you can imagine, organizations don’t necessarily use one type of departmentalization exclusively. Some organizations use multiple types of departmentalization options. In some cases, one region of a company, for instance, will have functional departmentalization and customer departmentalization within that one department to make things more efficient and free-flowing within an organization.
In addition, different types of departmentalization are used at various levels. Top management may use one type, whereas middle managers or frontline managers may use another type of departmentalization.
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- Departmentalization
- Clustering employees into groups to work together in a specific division.
Today, we learned about getting organized and organizing a business around an organization chart, making sure we understand the chain of command. We also learned about departmentalization, which refers to the different areas or departments a company or organization may be divided into to respond better to their customers. Specifically, we explored the following types of departmentalization: product, process, functional, customer, and geographic.
Good luck!
