Learning Outcomes

Differentiate in between the four simple types that departmentalization (function, product, customer, and also geography).Distinguish matrix institutions from traditional departments.Differentiate between team-based structures, networks, and also modular organizations.

You are watching: The primary disadvantage of customer departmentalization is ____.


Based on an organization’s applications of the typical elements—common purpose, combination effort, division of labor, hierarchy of authority, as well as centralization/decentralization and formalization—the resulting structure will frequently exhibit among four vast departmental structures: functional, product, customer, and geographic.

Functional Structure

As sales increase, organizations generally embrace a functional structure. This structure groups employees right into functional areas based on your expertise. This functional areas often exchange mail to stages in the worth chain such as operations, research and also development, and marketing and also sales. They also include support areas such as accounting, finance, and human resources. The graphic that complies with shows a sensible structure, with the currently indicating reporting and authority relationships. The department head the each sensible area reports come the CEO; the CEO then coordinates and also integrates the work-related of every function.

Functional structure organizational chart.

A practical structure permits for a higher degree the specialization and deeper domain specialization than a simple structure. Higher specialization also enables for a greater department of labor, i m sorry is connected to higher productivity.<1> Although job-related in a useful structure tends to be specialized, that is centrally coordinated by the CEO, as in the earlier graphic. A useful structure allows for an reliable top-down and bottom-up interaction chain between the CEO and also the practical departments, and thus relies on a fairly tall structure. The disadvantage inherent to a functional structure is that the emphasis on expertise can reason high level of task dissatisfaction and also fewer procedure improvements for the business.

Product Structure

Companies with diversified product lines generally structure based upon the product or service. GE, for example, has actually structured 6 product-specific departments supported by six centralized service divisions. (1) Energy, (2) funding (3) residence & service Solutions, (4) Healthcare, (5) Aviation, and (6) Transportation. Product divisions work fine where assets are much more technical and require more specialized knowledge. This product departments are supported by centralized services, i m sorry include: windy relations, business development, legal, global research, person resources, and also finance.

This kind of framework is best for institutions with many products and also can help shorten product breakthrough cycles. One disadvantage is that it have the right to be difficult to scale. An additional disadvantage is the the company may finish up through duplicate sources as various divisions strive because that autonomy.

Customer Structure

Companies that market services, such as health care, often tend to usage a customer-based structure. While similar to the product structure, the different service segments at the bottom are each break-up into a certain customer group—for example, outpatient, urgent care, and emergency care patients. Because the customers differ significantly, it provides sense to customize the service. Employees can specialize roughly the form of customer and also be much more productive with that form of customer. The director of each customer facility would report straight to the chief clinical officer and/or the hospital CEO. This is also designed to avoid overlap, confusion, and redundancies. The customer framework is suitable when the organization’s product or service needs to it is in tailored to specific customers.

Customer structure organizational chart.

The customer-based framework is best for an organization that has commodities or services distinctive to specific market segments, specifically if that company has advanced knowledge of those segments. However, there are disadvantages come this structure, too. If over there is too much autonomy throughout the divisions, incompatible systems may develop. Or divisions may end up inadvertently duplicating activities that other departments are already managing.

Geography Structure

If an organization spans multiple geographical regions, and also the product or company needs to it is in localized, it frequently requires organization by region. Geographic structuring involves grouping tasks based on geography, such as a Latin American division. Geographical structuring is specifically important if tastes and also brand responses differ throughout regions, as it allows for versatility in product offerings and marketing strategies. Also, geographical structuring may be necessary due to the fact that of cost and ease of access of resources, distribution strategies, and laws in international countries. Coca Cola frameworks geographically because of the cost of transporting water. NetJets, a exclusive aviation company, had to produce a separate company in Portugal to operate NetJets Europe, due to the fact that the entity had to be owned by a european Union carrier.

McDonald’s is popular for its geographical structure and also localization strategy because that food preferences. The McDonald’s in Malaysia is certified halal (no pork products) and you can order the McD Chicken Porridge: chicken and onions in porridge. Other examples are Brie Nuggets (fried brie) in Russia; the Ebi Filet-O (shrimp patty) in Japan; and also in Canada, you can gain poutine (fries and also cheese curds smothered in gravy).

This kind of structure is ideal for organizations that need to be close to sources of supply and/or customers. The key disadvantage that a geographical business structure is the it can be basic for decision make to come to be decentralized; geographic departments can occasionally be hundreds, if no thousands, the miles far from this firm headquarters, allowing them to have actually a high level of autonomy.

Matrix Organizations

Where 2 dimensions space critical, companies will usage a matrix structure. Employees might be arranged according come product and geography, for example, and have two bosses. The idea behind this form of matrix framework is to integrate the localization benefits of the location structure v those that the sensible structure (responsiveness and decentralized focus).

Matrix structure with geographic and product (SBU) structure.

The advantage of the matrix structure is that it can carry out both versatility and more balanced decision making (because 2 chains that command exist instead of just one). Its major disadvantage: complexity, which deserve to lead to confused employees.

Team-based Structures, Networks, and also Modular Organizations

The reality is the if an organization is successful enough to survive and also grow, that will at some point need some kind of integration. Poor communication in between siloed departments frequently leads to a crisis that inspires efforts to integrate—efforts such together teams, networks, and modular structures.

Team-based Structure

Over the last number of decades, team-based structures of some variation have end up being common in practically every industry. Lockheed Martin aircraft Corporation started its “Skunk Works” task in 1943 in response to the U.S. Army’s need for a jet fighter. Based on a handshake, a small team of designers worked covertly in a time to design and build the XP-80 shooting Star Jet Fighter in 143 days—seven days less than was required. The level that secrecy essential for this type of a job team is very rare in many organizations, yet it did generate the modern-day project team.


In general, a team is comprised of people with complementary skills who are working toward a common purpose. Organizations produce teams by grouping employees in a means that generates a variety of expertise and addresses a certain operational component of the organization. Teams that include members from different functions are well-known as cross-functional teams. Because of the success of early on project teams, the id is that a team will be a more an imaginative and productive structure come face brand-new challenges. That is necessary to remember, however, that every team is a group however not every group is a team. A team structure should be less hierarchical, re-superstructure the leadership, and also be an ext fluid than classic structures (such as sensible or divisional). True teams do not disband after a project. Rather, they continue to adjust and adapt to fulfill group and also organizational missions over several years.

The adhering to table lists several of the differences in between teams and also groups.

Differences in between Teams and also GroupsTeamsGroupsPurposeWorkPerformanceSkillsLeadershipAccountabilityCommunication
Distinct, particular to the team charterIndistinguishable from, or parallels the of, the organization
Interdependent v a collective work productIndependent tasks with individual job-related products
Synergy – collectively we achieve more than the amount of separation, personal, instance effortsAdditive – the amount of the separation, personal, instance efforts
SharedOne leader
Mutual accountability, obligation for the collective work productIndividuals: for their very own productsLeader: For team product
Performance conversationsHierarchical

Source: Information acquired from Katzenbach and Smith (1993)

Team structures can get rid of layers the management, which enables employees to do decisions without obtaining multiple approvals. This streamlines processes and also lowers administrative costs. However, motivating people in a team-based organization deserve to be more difficult as team success are rewarded quite than individual achievements.

Network Structure

The newest, and most divergent, team framework is generally known together a network structure. A network framework has tiny bureaucracy and features decentralized decision making. Supervisors coordinate and also control connections both internal and also external to the firm. A social framework of interactions is promoted to build and manage formal and informal relationships. The goal of this structure is to attain rapid business evolution and adaptation come constantly transforming external and also internal environments.

Zappos has taken on this model and labeled that holacracy. Fairly than relying top top a classic top-down ordered management structure, holacracy attempts to accomplish control and coordination by distributing power and also authority come self-organizing teams (so-called circles) of employees. Circles of employees are meant come self-organize and also own a specific task, such together confirming digital orders or authorizing a customer’s credit card. Order is supposed to emerge from the bottom up, quite than count on top-down command and also control together in traditional organizational structures. Rules space explicit in a so-called constitution, which defines the power and also authority of each circle. For coordination, the employee one overlap horizontally and without upright hierarchy. As soon as the teams are in place, the CEO effectively relinquishes all executive powers.

A network framework is supposed to promote communication and also the complimentary flow of information in between different parts of the company as needed. However, the one structure have the right to be confusing, specifically for new employees.<2>

The following video explores Zappos’ work society and business structure.

You deserve to view the transcript for “Zappos is a weird company — and it’s happy that way” below (opens in brand-new window).

Modular Organizations

A organization that has areas or department that have the right to be quickly separated native the company without jeopardizing the firm are taken into consideration to have actually a modular organizational structure. The an essential lies in the capacity to recognize which modules, or departments, of a service are effective and also which have the right to be outsourced to create a tighter organization.

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Organizations that desire to continue to be flexible and streamlined must recognize when the is time to eliminate a module and enable the job to it is in done exterior the company. For example, a small specialty T-Shirt firm may identify that its design, production, and also customer service modules space at peak kind and working well together yet that its website design and maintenance department is slowing that down. The shop may externalize the module and also send the work-related to an outside business.<3>