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By function/expertise: grouping individuals by those who share similar skills, functions, disciplines, and/or work processes;
- This type of grouping is common in functional organizations such as new organizations, single major businesses and businesses that share the same technology and markets. All activities are concerned with a particular function are grouped together in a separate divisions.
Advantages of such include:
- Allows for deep functional expertise and a high level of specialization; cultivates innovation in the function of the division
- Allows for economies of scope: it becomes easy to transfer resources (info, people, equipment) across activities within functions because they are all group together
- Allows for the division to create separate incentive and control systems that suit their needs and reinforce their strengths
Disadvantages of such include:
- Lack of integration across functions/organization
- Group becomes unresponsive to changes in markets or customer
- High levels of specialization can and often will lead to narrower perspective
- Difficult to assess cost and accountability for the overall process and performance of activities that require cross functional work
- Results in tall hierarchies within organization
- Lacks broad understanding of the overall business because of specialization
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