Every firm has to carry out certain activities to accomplish its goals. For a manufacturer they include manufacturing, selling, and accounting. For a bank they include lending, bookkeeping, and security. Departmentalization is the process through which a firm’s activities are grouped together and assigned to managers. There are five main types of departmentalization: functional, product, customer, territorial, and matrix.
The most familiar form of departmentalization is functional departmentalization (see Figure 8-4). Functional departmentalization is grouping activities around essential functions or basic processes. The functions might include production, marketing, and finance. The processes might include plating and welding.
Functional departmentalization is a simple and logical way to organize. The great simplicity of this approach, however, can backfire if the firm gets too large or has a great many products. For example, using the same production department to manufacture ten different products can become confusing. Thus other ways to organize departments have evolved.
For years General Motors was organized around its five basic car lines Chevrolet, Pontiac, Buick, Oldsmobile, and Cadillac. Product departmentalization is grouping activities around products or product lines. A dairy firm might set up separate departments for milk, cheese, yogurt, and ice cream.
At General Electric each department serves a particular customer group for example, consumers, aerospace customers, and other industrial customers. Customer departmentalization is grouping activities around the needs of particular customers.
The U.S. Federal Reserve System, which oversees much of the country’s banking system, is divided into twelve geographic areas. Territorial departmentalization is grouping activities around the geographic areas in which the firm does business.
Citicorp Bank is organized geographically, with separate offices set up in various countries. At the same time, top management can pull together specialists from each country into project teams. Each team assists a particular large global customer, such as IBM, which has offices in many cities around the world. Matrix departmentalization is grouping activities around a functional set of departments but with specialists from each department working together on specific projects.
As the Manufacturers Bank ad shows, some banks offer their services to businesses all over the world.