‘Departmentation’ or ‘Departmentalization’ is the process of classifying enterprise activities in many units for the purpose of administration at all levels. Departmentation means the division of work in small units and their re-grouping on the basis of the similarities of facilities in large units (departments).
As the organization grows in size, the work is divided into units and sub-units. Departments are created and activities of the same nature are classified into one unit. The leadership of each department is known as a departmental manager.
Thus, the departmentation helps in expanding an organization and promotes efficiency by dividing the work on the basis of the expertise of activities and by appointing the people in different departments on the basis of their special knowledge.
The departmentation can provide an essential degree of expertise of the executive activity for efficient performance. It can simplify management’s tasks within a practical period. It also provides a basis on which the top managers can coordinate and control the activities of departmental units.

Importance of Departmentation:

Organization structure: The division of work in units and sub-units produces departments. Supervisors and managers are appointed for the management of these departments. People are kept in different departments according to their special skills. The heads of departments ensure the proper functioning of their departments in accordance with the main principles of the organization (scalar chain, unity of command, integration of management, etc.).

Coordination: The organization is a system of integrated parts, and creates an organizational island to put an improper emphasis on any functional part at the expense of the entire organization, thus, creates problems related to inefficiency and critical behavior “. Creating a department focuses on departmental activities and facilitates coordination.

Efficiency: Workflow from one level to another level and for each department, i.e., vertical and horizontal flows of work in the organization increases organizational efficiency.

1. Specialization: Partition of work in departments leads to specialization because people of one department only perform related activities related to that department. They focus on a narrow set of activities and repeating the same task increases their ability to do more and efficiently. Promotes expertise, reduces production costs, and makes products competitive.

2. Flexibility:In larger organizations, one person can not take care of all managerial tasks (planning, organizing, etc.) for all departments. He can not make the organization conducive to its internal and external environment. Such an organization will become a rigid organization. Making departments and departmental heads make an organization flexible and favorable to the environment. Environmental changes can be included which strengthens the organization’s competition in the market.

3. Control: Managers can not control organizational activities if they have to collectively supervise. The department facilitates control by the departmental managers only on the activities of his department. The activities are divided into smaller sections, performance parameters can be prepared, factors affecting the performance can be identified and the control can be more objective in nature.

4. Responsibility: Since similar activities are classified in a department headed by departmental managers, it is easy for the top managers to decide the responsibility of the concerned managers to achieve the desired results. If planned performance is not achieved, the responsible department becomes accountable. When responsibility is clear, managers can also be assigned authorization. The efficiency of departmental activities increases with the clear identification of responsibility and authority.

Basis of Departmentation in an Organisation:

1. Departmentation by function:

The company can be divided into departments based on functions such as production, purchasing, sales, financing, personnel, etc. This is the most popular departmentation basis. If necessary, the main function can be divided into subfunctions. For example, production service activities can be categorized into quality control, materials processing, repairs, and maintenance.

Advantages of Department by Function:
1. It eliminates duplication of activities.
2. This facilitates coordination between departments.
3. This is good for small businesses for the creation of large departments.
4. It promotes specialization.
5. It allows senior management to exercise effective control over a limited number of functions.

Disadvantages of the department by function:
1. It hampers human development in all areas.
2. The decision-making process is delayed.
3. This can lead to excessive centralization.
4. There may be conflicts between departments.
5. It may be difficult to coordinate the activities of the different departments.

2. Departmentation by-product:

In the product departmentation, each major product is organized into a separate department. Each department deals with the production, sales, and financing of a product. The product departmentation is useful when the expansion, diversification, manufacturing and marketing characteristics of each product are mainly significant.

Advantages of Department by Product:
1. This facilitates decentralization.
2. It is more flexible and adaptable to change.
3. Special attention is given to product lines, which favors diversification and expansion.
4. Management is relieved of operational tasks and can focus on centralized activities such as finance, research, etc.
5. The performance of each product division and its contribution to total results can be easily assessed.

Disadvantages of the department by-product:
1. High operating costs prevent small and medium-sized enterprises from adopting this classification basis, especially for the creation of large units.
2. This increases management costs. The service functions are duplicated at the highest and most operational management levels.
3. This creates the problem of effective divisional control over products by top managers.
4. Each product division has its own specialized staff, which can result in high operating costs.
5. There are problems at the top of the coordination.

3. Departmentation by territory:

The territorial or geographical departmentation is particularly useful for large companies whose activities are very dispersed. Banks, insurance companies, transport companies, distribution agencies, etc. are some examples of such enterprises, in which all the activities of a given field of activity are grouped into zones, branches, divisions, etc.

Advantages of departmentation by territory:
1. It helps to reduce transportation and distribution costs.
2. It facilitates the expansion of business in various regions.
3. There is better coordination of activities in a locality through the establishment of regional divisions.
4. It offers a regional manager the opportunity to gain extensive experience in the complete management of the operation in a given territory.
5. Special attention may be given to local customer groups.

Disadvantages of departmentation by territory:
1. The coordination and control of the different branches from headquarters become less efficient.
2. This may not be economical because of the costly duplication of staff and physical facilities.
3. Various regional units may become so absorbed by short-term competition between them that the long-term general interests of the organization as a whole may be neglected.
4. Due to the duplication of physical facilities, operating costs are generally high.
5. There may be a conflict between regional managers.

4. Departmentation by customers:

This type of classification is adopted by companies offering specialized services. To draw attention to heterogeneous buying groups in the market, marketing activities are often divided into several parts. This type of departmentation is useful for companies that sell a product or service to a number of clearly defined customer groups. For example, a large, ready-to-use clothing store may have a separate department for men, women, and children. A bank may have separate credit departments for large and small entrepreneurs.

Advantages of Departmentation by Customers:
1. The benefits of specialization can be obtained.
2. The company can gain a thorough understanding of the needs of each category of customers.
3. Special attention may be given to the tastes and preferences of each type of customer.
4. Different types of customers can be easily satisfied by specialized staff. Customer satisfaction enhances the acquisition of goodwill and the sale of the business.

Disadvantages of departmentation by customers:
1. It can be difficult to maintain coordination between different client departments.
2. Customer service managers can lobby for specific benefits and facilities.
3. This can lead to duplication of activities and significant overhead.
4. There may be duplication and underutilization of facilities and resources.

5. Departmentation by process:

In each departmentation, activities are grouped according to the production processes or equipment used. This is generally used in manufacturing and distribution companies and at lower organizational levels. For example, a textile factory can be organized into ginning, spinning, weaving, dyeing and finishing departments. Similarly, a printing press may have departments of composition, proofreading, printing, and binding. This departmentation can also be employed in the engineering and petroleum industries.

Advantages of departmentation by process:
1. This simplifies the supervision and layout of the facility.
2. The benefits of specialization are available.
3. It offers an economy of operation
4. Efficient maintenance of equipment is possible.
5. It provides the benefits of the required specialization at each level of the total process.

Disadvantages of departmentation by process:
1. This type of department may not provide an opportunity for the full development of management talent.
2. Due to a specialized activity, employee mobility is reduced.
3. It can be difficult to coordinate the activities of different departments
4. Extreme specialization can reduce the flexibility of operations.
5. Conflicts can arise between different process owners, especially when they lose sight of the company’s overall objectives.


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