1. Internal Organisations
Grouping of Activities

2. Learning Objectives…
To identify the main ways of grouping activities within an organisation ie
Function
Product/Service
Customer
Geographical Area
Technology

3. An Organisation
“An organisation is the rational co-ordination of a number of people for the achievement of some common explicit purpose or goal through the division of labour and a hierarchy of authority.”
Edgar Schein

4. Organisation by Function
The organisation of staff is essential to the efficient
running of a business. Many businesses organise their
employees into the 4 Functional Areas – ie a school
4 main departments found in most organisations
2 departments found mainly in large organisations
Regarded as “typical” and associated with a centralised organisational structure

5. Organisation by Function
Advantages
Efficient use of resources
Staff specialisation
Career progression
Centralised decisions
Good communications within the department
Team working improves
Disadvantages
Departmental rivalry
Staff loyalty to department and not to company
Poor communication between departments
Slow response to external factors
Slow decision-making
Over specialised workforce
Difficult to pinpoint problems

6. Organisation by Product/Service
Used by multi-product firms ie Proctor & Gamble, Virgin.
Each division has its own functional staff and concentrate on the individual products it offers.
Local authorities in the public sector will also be organised on a ‘Service’ Grouping – with employees being grouped according to different services it offers such as Education, Leisure, Social Services etc.
Each group will often have their own Functional Structure – eg P&G might have a Group for Household Products and one Beauty Products. There will be a separate Sales & Marketing and Operations Departments for each product/service. However, HR and Finance may still be centrally allocated to the whole organisation.

7. Organisation by Product/Service
Advantages
Each division can focus on its own market segment
Each division’s performance can be measured
Healthy competition between divisions
Allows flexibility - can close down or sell off loss-making divisions
Co-operation between divisions can reduce costs - eg shared transport for the whole group
Disadvantages
Duplication of functions may be wasteful
Competition may de-motivate a poorly performing division
Loss of control by central management over divisional managers

8. Organisation by Customer
Customer groups are divisions dealing with different types of customers (e.g. grouped by retail, trade, overseas and mail order customers).
Examples of this may be Banks, Insurance Companies etc. This is because there is a high degree of customer contract involved in the business and allows an organisation to cater the needs of individual clients.
Advantages
Can cater for specific customer needs
Customer loyalty builds up because of personal service.
The market can be segmented
Disadvantages
Can be inefficient if a division is too small (insufficient customers)
Loss of control by senior management over divisional managers

9. Organisation by Geographical Area
Multinational businesses operating globally may choose to organise their employees according to the geographical location. eg Sony, McDonalds, Ford etc.
This enables them to meets the needs of customers in different countries who may have language or cultural differences.
Disadvantages
Duplication of resources
Loss of control by senior management over area managers
Advantages
Can serve the needs of local people more easily
“Local” branch can be held accountable for success or failure of that area
Customer loyalty can be built up through local personal service
Healthy competition between regions
The local branch is more responsive to changes in customer needs

10. Organisation by Technology
Used in the manufacturing sector where different technological processes are involved in a diverse range of products
There are only a few businesses who fit this category, Mitsubishi is one, they manufacture cars and electrical products.
Scope for specialisation of the workforce and simplified training within the same manufacturing process

11. Organisation by Technology
Advantages
Increased
specialisation in
production process
Maximum use of capital
equipment
Can cater for very
diverse markets
Problems are easily
pinpointed
Disadvantages
Capital equipment is
expensive
Staff may require
specialist training
Only appropriate where
products are different
and in large organisations

12. Line/Staff Grouping
This is a grouping in which the organisation is divided up into line departments involved in generating revenue
Eg sales, and staff providing specialist support for the whole organisation (eg finance and human resources)

13. Note!
A business may have more than one grouping to organise it’s activities. A multinational company may use place/territory groupings e.g. US division, European division etc then each division may be split into functional groupings with each territory having their own marketing, finance, operations and HR departments eg:
It is unlikely that a large organisation has only one type of grouping.

14. OPERATIONS INCLUDING MARKETING
ARNOLD CLARK ORGANISATION CHART
CHAIRMAN
MANAGING DIRECTOR
FINANCE
ADMIN
OPERATIONS INCLUDING MARKETING
CAR
RENTAL
CORPORATE
and
PRIVATE SALES
MAJOR ACCOUNTS
Eg LOCAL
AUTHORITY SALES
Chart adapted from
Arnold Clark has functional departments for Finance, Administration and Operations.
It has different departments for different types of products it offers eg Car Rental and Sales.
It also has two departments that are divided according to customer grouping. One department targets corporate and private customers and another for major accounts suck as local authorities.

15. Past Paper Questions
Q1. Organisations group their activities in a number of different ways.
(a) Distinguish between the following 3 types of organisational groupings:
• Product/Service Grouping
• Customer Grouping
• Technological Grouping. (8)
 NOTE – The command word used in this question was “distinguish”. This requires candidates to “identify the differences between two or more factors”.

16. Solution (2 statements= 2 marks)
[Product/service grouping is where the products or services of an organisation are grouped together in divisions or departments within a different product range] whereas [customer grouping is where the organisation is grouped around different customer types.]
(2 statements= 2 marks)
[Product/service grouping allows for each separate division to be more responsive to customers requirements and trends in its area] on the other hand [customer grouping allows each division to offer a unique service to each segment or customer type.]
[Technological grouping can reduce wastage and costs due to the maximum use of capital resources] however [with customer grouping there can be high staff costs as a result of the continuous requirement of excellent customer service and duplication of functional departments] .
[Technological grouping is only an option for very large organisations who have different products with similar production processes] whereas [product/service grouping allows for the grouping of different products with different processes.]