Organization Structure: What is functional departmentalization?

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What is organizing? Organizing means arranging the activities in such a way that they systematically contribute to enterprise goals. An organization consists of people whose specialized tasks are coordinated to contribute to the organization's goals.

The usual way of depicting an organization is with an organization chart. It shows the structure of the organization; specifically, the title of each manager's position and, by means of connecting lines, who is accountable to whom and who is in charge of what area. The organization chart also shows the chain of command (sometimes called the scalar chain or the line of authority) between the top of the organization and the lowest positions in the chart. The chain of command represents the path a directive should take in traveling from the president to employees at the bottom of the organization chart or from employees at the bottom to the top of the organization chart (Dessler, p. 120).

At Phoenix Logistics, our organization chart is a creation of functional departmentalization. Functional departmentalization means grouping activities around basic functions like manufacturing, sales, and finance (Dessler, p. 122). At our company, each department is organized around a different business functions: sales/marketing, product development, and technical support. In addition, we have a group of supervisors within each department. These supervisors' functions include planning, control, and administration. At each of the Department Heads, we also have a staff that works in each department, with an Office Supervisor. The basic idea of Phoenix Logistics' functional departmentalization is to group activities around the core functions our company must carry out. Hence, our core functions are to create, integrate and deliver business-critical transaction management systems and services that enable the energy industry to enhance reliability and profitability in the competitive market place.

Advantages & Disadvantages


Organizing departments around functions has several advantages:

1. It is simple, straightforward, and logical; it makes sense to build departments around the basic functions in which the enterprise must engage.

2. Functional organizations usually have single departments for areas like sales, production, and finance that serve all the company's products, rather than duplicate facilities for each product. Because the volume in these departments is relatively high, the firm typically gets increased returns to scale--in other words, employees become more proficient from doing the same job over and over again, and the company can afford larger plants and more efficient equipment. Functional organizations are therefore often associated with efficiency.

3. The managers' duties in each of the functional departments tend to be more specialized (a manager may specialize in finance or production, for instance); the enterprise therefore needs fewer general managers--those with the breadth of experience to administer several functions at once. This can simplify both recruiting and training.

4. Functional department managers also tend to receive information on only part of the big picture of the company--on that which concerns their own specialized functions. This can make it easier for top management to exercise control over the department managers' activities.


Functional organizations also have disadvantages:

1. Responsibility for the enterprise's overall performance rests on the shoulders of one person, usually the president. He or she may be the only one in a position to coordinate the work of the functional departments, each of which is only one element in producing and supplying the company's product or service. This may not be a serious problem when the firm is small or does not work with a lot of products. But as size and diversity of products increase, the job of coordinating, say, production, sales, and...
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