to pay for advertising. The WD-40 Company, which makes a popular lubricating oil, and
the McIlhenny Company, which makes tabasco sauce, are both examples of firms that
use the U-form design.
In general, this approach shares the basic advantages and disadvantages of functional
departmentalization. Thus, it allows the organization to staff all important positions with
functional experts, and it facilitates coordination and integration. On the other hand, it also
promotes a functional, rather than an organizational, focus and tends to promote centraliza-
tion. Functionally based designs are most commonly used in small organizations because an
individual CEO can easily oversee and coordinate the entire organization. As an organization
grows, the CEO finds staying on top of all functional areas increasingly difficult.
Conglomerate (H-Form) Design
Another common form of organization design is the conglomerate, or
H-form
(for hold-
ing, as in holding company), approach.
42
The
conglomerate design
is used by an orga-
nization made up of a set of unrelated businesses. Thus, the H-form design is essentially
a holding company that results from unrelated diversification.
This approach is based loosely on the product form of departmentalization. Each
business or set of businesses is operated by a general manager who is responsible for its
profits or losses, and each general manager functions independently of the others.
Samsung Electronics Company, a South Korean firm, uses the H-form design. As illus-
trated in Figure 6.3, Samsung consists of four basic business groups. Other firms that
use the H-form design include General Electric (aircraft engines, appliances, medical
equipment, financial services, lighting products, plastics, and other unrelated businesses)
and Tenneco (pipelines, auto parts, financial services, and other unrelated businesses).
Honeywell has also recently adopted the H-form design.
43
In an H-form organization, a corporate staff usually evaluates the performance of
each business, allocates corporate resources across companies, and shapes decisions
about buying and selling businesses. The basic shortcoming of the H-form design is the
complexity associated with holding diverse and unrelated businesses. Managers usually
find it difficult to compare and integrate activities across a large number of diverse
operations. Research suggests that many organizations following this approach achieve
only average-to-weak financial performance.
44
Thus, although some U.S. firms are still
using the H-form design, many have abandoned it for other approaches.
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