Prof.

Chhaya Patel

Departmentation
Meaning of Departmentation

Departmentation is the foundation of organisation structure.

Departmentation means division of work into smaller units and their
re-grouping into bigger units (departments) on the basis of similarity
of features. Each department is headed by a person known as
departmental manager. Division of work into departments leads to
specialisation as people of one department perform activities related
to that department only. Departmentation provides scope for
organisations growth (along the same product lines) and expansion
(addition of new product lines).
Basis of Departmentation

There are two broad forms of organisation structure or

departmentation:
1. Functional departmentation
2. Divisional departmentation
 Functional Departmentaion

It is grouping of activities on the basis of similarities of functions.

The nature of activities performed by different organisations is
different. Activities carried by a manufacturing concern are
production, finance, personnel and sales. For a trader, the major
activities are buying and selling. A bank performs the activities of
borrowing and lending. The major functional departments further
have derivative departments. Production department, for example,
has departments to handle purchasing, production planning and
control, manufacturing etc.
 Organisation Chart Showing
Functional Departmentation
Board of Directors

GM GM GM GM
Functional Production Finance Personnel Marketing
Departments

Production Capital Recruitment Advertisement

Control Budgeting

Derivative Manufacturing Current Assets Placement Sales Promotion

Departments
Purchasing Budgets Training R&D

Promotions
 Merits of Functional
Departmentation
1. Simple and logical basis of creating departments
2. Specialisaton
3. Co-ordination
4. Training and control
5. Supervision
6. Suitable for stable organisations
7. Suitable for small organisations
 Limitations of Functional
Departmentation
1. Overall organisational goals
2. Delayed decisions
3. Co-ordination
4. Holding of accountablity
5. Unsuitable for dynamic organisations
6. Complexity
 Divisional Departmentation

Divisional structures are created on the basis of smaller divisions

where each division has its own functional activities (production,
finance, personnel and marketing). Major divisions that determine the
organisaion structure are
1. Product departmentation
2. Process or Equipment departmentation
3. Cutomer departmentation
4. Terriority or Geographic departmentation
5. Departmentation by Time
6. Departmentation by Size
7. Departmentation by Task Force
 Product Departmentation

This form of departmentation is suitable for companies that produce

multiple products. Product departmentation is grouping of jobs and
resources around the products or product lines that a company sells. The
focus is on the product line and all functional activities associated with
the product line. Departments are created on the basis of products and
product manager has the authority to carry out functional activities for
his department.
 Organisation Chart Showing
Product Departmentation
Board of Directors

GM GM GM GM
Production Finance Personnel Marketing

Manager Manager Manager

Product Product Product
A B C

Production Production Production

Finance Finance Finance
Accounting Accounting Accounting
R&D R&D R&D
 Merits of Product
Departmentation
(i) Better performance
(ii) Flexibility
(iii) Faster decisions
(iv) Co-ordination
(v) Control
(vi) Responsibility
(vii) Efficiency
 Limitations of Product
Departmentation
(i) Co-ordination
(ii) Expensive
(iii) Control
 Process Departmentation

In manufacturing organisations, where the product passes through

different stages of production, each stage is designated as a process
and departments created on the basis of processes is called process
departmentation. For each process, departments are created and
headed by people who are skilled and competent to carry that
process.
 Organisation Chart Showing
Process Departmentation

Board of Directors

GM GM GM GM
Production Finance Personnel Marketing

Manager Manager Manager Manager Manager

Crushing Making Pulp Purifying Pulp Paper Rolls Cutting
 Merits of Process
Departmentation
(i) Specialisation
(ii) Economic considerations
(iii) Technological consideration
(iv) Facilitates training
 Limitations of Process
Departmentation

(i) Co-ordination
(ii) Boredom
 Customer Departmentation

When organisations sell goods to customers with different needs,

departments on the basis of customers is the suitable form of
departmentation. It is the organising of jobs and resources in such a
way that each department can carefully understand and respond to the
different needs of specific customer groups. Clear identification of
customers and their needs is the basis of departmentalisation.
 Organisation Chart Showing
Customer Departmentation

Board of Directors

Managing Directors

Manager Manager Manager Manager

Car Loans Housing Electronic Commercial
Loans Loans Loans
 Merits of Customer
Departmentation
(i) Competitive advantage
(ii) Customer orientation
(iii) Specialisation
 Limitations of Customer
Departmentation
(i) Co-ordination
(ii) Identification of consumer groups
(iii) Change in consumer behaviour
(iv) Specialised staff
 Geographic Departmentation

In territorial departmentation, organisation creates departments (i) close

to its customers because they are geographically dispersed over different
areas, or (ii) near the sources of deposits.
Each geographic unit has resources to cater to the needs of consumers of
that area. General Manager of every department looks after functional
activities of his geographical area while overall functional managers
provide supporting services to the managers of different areas.
 Organisation Chart Showing
Geographic Departmentation
Board of Directors

Managing Director

GM GM GM GM
Production Finance Personnel Marketing

Manager Manager Manager

Product Product Product
A B C

Production Production Production

Purchase Purchase Purchase
Personnel Personnel Personnel
Marketing Marketing Marketing
 Merits of Geographic
Departmentation
(i) Training and development
(ii) Customer orientation
(iii) Low cost of production
(iv) Communication
 Limitations of Geographic
Departmentation
(i) Co-ordination and control
(ii) Expensive
(iii) Managerial skills
 Departmentation By Time

This method of departmentation is used in situations where work is

done round the clock because
1. the machine cannot be stopped before finishing the work
(manufacturing steel)
2. the demand is high and the machine has to work overtime (during
boom conditioned)
3. the nature of work entrusted to the organisations is such (Airlines
or Railways)
4. the services are essential in nature (health and fire services).
5. Workers work in shifts; morning, afternoon and night, so that work
can progress continuously.
 Departmentation By Size

This method is followed in army where number of workers in the unit is

important. The companys performance is judged by the number of
people working with it, and therefore, it adopts departmentation by size.
 Departmentation By Task
Force

When organisation takes up different projects, it forms task forces,

which consist of people from different units having different skills to
carry out those projects. These groups are formed temporarily to work
till completion of the project. They are similar to project organisations.
 Distinction between Functional
and Divisional Structures
The following table highlights the differences between functional and
divisional structures :
 Choice of Methods of
Departmentation
Though departments can be created on different basis, no method can
be described as the best. The factors that must be considered while
choosing a basis of departmentation are:
1. The work and the process involved
2. The extent of specialisation
3. The capabilities of workers
4. The technology employed
5. The competitors approach
6. The extent to which co-ordination and control is centralised or
decentralised
7. The environment, internal and external to the organisation
8. Optimum utilisation of resources