Perhaps the most widely used basis for establishing departments within the formal structure is the type of work functions (activities) being performed within the management system.44 Functions are typically divided into the major categories of marketing, production, and finance. Figure 8.4 is an organization chart showing structure based primarily on function for Sony.

Functional departmentalizing brings with it both advantages and disadvantages. Perhaps the primary advantage of functional departmentalizing is the control conferred to the various functional heads. The vice president of marketing for Sony, for example, is able to control and coordinate the marketing plan for all of the organization’s products, geographic regions, and customers. This structure allows for consistent marketing messages throughout the company. At the same time, however, the marketing plan emanating from such a structure may not be differentiated enough to suit the needs of Sony’s diverse products, geographic regions, and customers. In other words, this structure may implicitly impose functional standardization that may not meet the needs of the organization’s various products and services.

Organization structure based primarily on product or service departmentalizes resources according to the products or services being offered. As more and more products are offered by a company, it becomes increasingly difficult for management to coordinate activities across the organization. However, organizing according to product or service permits the logical grouping of resources necessary to produce and market each product or service. Figure 8.5 is an organization chart for Sony showing structure based primarily on product.45

Product or service departmentalizing also has both advantages and disadvantages. One of the primary advantages is the ability to focus the organization’s efforts on each of the firm’s products or services. With this structure, for example, the vice president of electronics for Sony has the power and authority to control all aspects of the electronics business. Moreover, this type of structure directly associates responsibility for each of the firm’s products. If the electronics division does not perform well, for example, it is relatively easy for Sony’s CEO to determine responsibility for the poor performance.

One of the primary disadvantages of this structure, though, is that the different units may result in duplication of efforts, which may lead to higher costs. Continuing the example of Sony, the managers of the electronics division and the music division may both request more capital for marketing expenditures. Moreover, they may both create marketing positions within their units to aid in the marketing efforts. Taken together, these types of requests may strain the organization’s resources.

Structure based primarily on territory departmentalizes according to the places where the work is being done or the geographic markets on which the management system is focusing. The physical distances can range from quite short (between two points in the same city) to quite long (between two points in the same state, in different states, or even in different countries).46 As market areas and work locations expand, the physical distances between places can make the management task extremely cumbersome. To minimize this problem, resources can be departmentalized according to territory. Figure 8.6 is an organization chart for Sony based primarily on territory.

Several advantages and disadvantages are associated with geographic departmentalizing. One of the primary advantages of this structure is that it helps the organization focus equally on the organization’s various geographic locations. For a company such as Sony, for example, the vice president of North America is in charge of operations in North America, and the vice president of Asia is in charge of operations in Asia. The organization defines clearly the individuals responsible for these various regions.

At the same time, however, this type of departmentalizing brings with it disadvantages. One of the main disadvantages, for example, is the lack of focus on products and services. In this example, the vice president for North America is responsible for selling movies, electronics, and music in North America. At the same time, the vice president of Asia is responsible for selling these same products in Asia; thus, no single manager is responsible for the performance of movies, electronics, and music. Instead, the responsibility is shared among various divisional vice presidents; this dispersion of responsibility may produce coordination problems.

Structure based primarily on the customer establishes departments in response to the organization’s major customers. This structure, of course, assumes that major customers can be identified and divided into logical categories. Figure 8.7 is an organization chart for Sony based primarily on customers. Sony can clearly identify its customers and divide them into logical categories.

Consider the new organizational structure created at Salt Lake City–based EnergySolutions, a firm in the nuclear energy industry. Formerly, the company consisted of four operating groups, organized by function, and reporting to a chief operating officer (COO). Reorganizing as three customer-focused groups has permitted the company to better integrate its service offerings for customers—and eliminate the role of COO.47

Like the previously discussed organizational structures, customer departmentalization has both advantages and disadvantages. One of the primary advantages of customer departmentalization is that the firm focuses explicitly on its customers. Sony, for example, could follow this structure and include a vice president for each of its largest customers. This structure would increase the likelihood that Sony would maintain its focus on its most important sources of sales. At the same time, however, this structure could create some redundancies and increased costs. For example, the vice presidents might require their own marketing departments, which would increase the likelihood of duplicated efforts.

The previous sections discussed several different types of departmentalizing; the potential advantages and disadvantages associated with each type were pointed out. These potential disadvantages have in part driven research examining “postbureaucratic” forms of organization.48 These various organizational forms have arisen as a way to circumvent the possible disadvantages of the previously mentioned types of departmentalizing.

One of the most popular examples of postbureaucratic organizational forms is a matrix structure. The matrix structure is best understood by first visualizing a more traditional form of organization structure. Figure 8.4, for example, shows a more traditional organizational form for Sony departmentalized by function. Figure 8.8 adds a series of projects (PlayStation 3, Spider-Man 3, and Portable Digital Music Player) and a manager for each project to the original organization structure to form a matrix organization for Sony. Essentially, a matrix organization is one in which a project manager(s) borrows workers from various parts of the organization to complete a specific project.50 For this reason, matrix organizations are also called project organizations. The project itself may be either long term or short term and, once finished, the employees borrowed to complete it return to their original jobs. Within a matrix structure, the workers are responsible for their original activities along with project activities. Because of the importance of matrix structure projects, project managers generally report directly to the company CEO.

As with other types of departmentalizing, departmentalizing by matrix has both advantages and disadvantages. Perhaps the chief advantage of the matrix structure is that it allows the organization to focus on various projects simultaneously. For example, the matrix structure in Figure 8.8 allows Sony to focus on PlayStation 3, Spider-Man 3, and the Portable Digital Music Player at the same time.

As just mentioned, the matrix structure also has disadvantages. For example, the matrix structure can be confusing, and employees may not be able to effectively cope with two bosses. In the Sony example, assume that the PlayStation 3 project manager and the vice president of marketing both ask the same employee to complete different tasks. Which task should the employee complete first? Issues such as these can make the matrix structure confusing.

Fayol’s Advice on Using Formal Structure

The preceding discussion emphasized how to establish organization structure and the related chain of command. Should a manager always adhere to established organization structure and related chain of command? Fayol indicated that strict adherence to a particular chain of command is not always advisable. 54 Figure  8.9 illustrates his rationale. If individual F needs information from individual G and follows the concept of chain of command, F has to go through individuals D, B, A, C, and E before reaching G. The information would get back to F only by going from G through E, C, A, B, and D. Obviously, this long, involved process can be time-consuming and therefore expensive for the organization.

To avoid this lengthy process, Fayol recommended that a bridge, or gangplank, be used to allow F to go directly to G for information. This bridge is represented in Figure 8.9 by the dotted line connecting F and G. Managers should be careful in allowing the use of these organizational bridges, however, because although F might get the information from G more quickly and cheaply that way, individuals D, B, A, C, and E would be excluded from the communication channel, and their ignorance might prove more costly to the organization in the long run than would following the established chain of command. Thus, when managers allow the use of an organizational bridge, they must be extremely vigilant about informing all other appropriate individuals within the organization of any information transmitted that way.