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Traditional organization design that would be most appropriate for entrepreneurs

Students who engage in an appropriate critical thinking analysis of the advantages and disadvantages of the different traditional forms of organizational design and the conditions calling for their differential use should have no problem figuring out the appropriate response.


The traditional organization design that would typically be most appropriate for use by entrepreneurs in the early stages of their small business development is the functional design. Small businesses are typically started to market a single product or service to a targeted market in a relatively uniform, stable environment where the probability of business success is high. 
 
A functional design involves the creation of positions and departments on the basis of either specialized activities, (such as marketing, human resources, and purchasing), or on the basis of the process used, (such as receiving, assembly, and inspection). Grouping tasks and employees by function can be both efficient and economical, which is very important to a new business struggling to become or remain profitable. Other relevant advantages include the fact that the functional design permits clear identification and assignment of responsibilities, and that employees easily understand it. In addition, people who are doing similar tasks and facing similar problems work together, thus increasing the opportunities for interaction and mutual support. 
 
A functional design may be effective when an organization has a narrow product line (typical in the case of new small businesses), competes in a uniform environment (again, likely in the case of a new business), pursues a low-cost or focused business strategy (appropriate for certain broad or targeted markets), and doesn't have to respond to the pressures of serving different types of customers.

The functional design is the most basic type of organization design and often represents a foundation from which other types of designs evolve. For example, integration across functional departments often becomes difficult as the organization increases the number of geographic areas served and the range of goods and services provided. In such cases, the addition of specialized staff departments (such as customer service) may enable an organization to deal effectively with some degree of environmental complexity. However, as the small business grows and begins to serve larger, more diverse markets with a broader product or service line, it will ultimately have to evolve to other, more complex forms of organization design, such as the place or product designs.
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