An entrepreneur employs 20 people, whom he supervises personally. However, within a few years the company will likely employ over 200 people in production, sales, engineering and administration due to the growing success of the company's new products. The entrepreneur likes the current structure and wants to avoid other forms of departmentalization. Explain why the entrepreneur should consider other forms of departmentalization as the company grows larger.

Question

What will be an ideal response?

Answer 1

Currently, the organization in this scenario has a simple structure. The entrepreneur should
realize that the simple structure usually depends on the owner's direct supervision to
coordinate work activities, so it would be very difficult to continue to operate as a simple
structure when the company grows and becomes more complex. As an organization grows,
departmentalization into a functional or divisional form becomes necessary to better
coordinate work activities as the number of employees increases. Most forms of
departmentalization (e.g. functional, divisional, matrix, hybrid) form departments that establish
a system of common supervision among positions and units within the organization.
Departmentalization typically determines which positions and units must share resources.
Thus, it establishes interdependencies among employees and subunits. Departmentalization
usually creates common measures of performance. Members of the same department, for
example, share the same departmental or team goals. Common budgets and other resources
also provide a means by which the performance of subunits may be compared.
Departmentalization encourages coordination through informal communication among people and subunits. With common supervision and resources, members within each configuration typically work in close proximity. This encourages frequent, informal communication among employees so that they may coordinate work activities. The entrepreneur should also realize that organizational structures don't
t evolve as a natural response to environmental conditions; they result from conscious human decisions. Thus, organizational strategy influences both the contingencies of structure and the structure itself. If a company's strategy is to compete through innovation, a more organic structure would be preferred because it is easier for employees to share knowledge and be creative. If a company chooses a low-cost strategy, a mechanistic structure is preferred because it maximizes production and service efficiency.