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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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