Although companies have much in common with one another, they also differ in many ways. Some companies are large, some are small and some operate in only one product area, others operate in many diversified areas. Some operate in a small geographic area whereas others do business in many countries of the world. To cope with these varied objectives, strategies and situations, companies adopt different structures.

Departmentation is the process of dividing the company into manageable subunits. The subunits are often referred to as departments, divisions or sections. So many flexible structures are adopted these days to meet the specific needs of the companies. When low cost and efficiency are the keys to successful goal achievement, fulfillment companies should use functional departmentation. It involves grouping employees according to broad tasks they perform. Normally, separate departments are created for all the key activities of the business.

For example, in a manufacturing company, the activities essential to the existence of the company are production, marketing and finance. However, in non- manufacturing concerns these functions differ. In a transport company, the key areas may be operations, sales and finance. If the company is large, or in other words, as the company grows major departments can be subdivided. The essential idea is to take advantage of specialization.

If the company is big and operates in a stable environment, it can afford to formalize the structure. The greater the intensity of competition, the greater will be the degree of decentralization. The greater the volatility of the environment, the more decentralized and flexible company has to be and companies that implement the organizational style appropriate to their strategy will be more effective than those that use an in-appropriate style.

The question that what kind of structure is best has no single right answer. It depends on the situation. Some company need stable systems while some other needed flexible systems. The nature of the task, technology, environment and the needs of the company members are some of the factors that influence the design of the structure.