Departmentation is one of the building blocks of organizational structure.

The purpose of
departmentation is to specialize activities, simplify the tasks of managers and maintain
control in an organization. As departments vary with respect to basic patterns used to
group activities, we will identify some common and widely used bases along which
departments are created and discuss further about the more appropriate and effective base
of departmentation.

What is departmentation?

Departmentation is the grouping of jobs according to some logical arrangement. It is the

manner in which activities should be divided and formed into specialized groups in an
organization.

Rationale of departmentation:

When organizations are small, the owner-manager can personally oversee everyone who
works there. As an organization grows, however, personally supervising all the
employees become more and more difficult for the owner-manager and the number of
specialized jobs also increases. Consequently, new managerial positions are created to
supervise the work of others. Employees are not assigned to particular managers
randomly. Rather jobs are grouped according to some plan. The logic embodied in such a
plan is the basis for all departmentation.

Base of departmentation:

The crucial managerial consideration when creating departments is to determine the basis
of grouping jobs. Departmentation is done to achieve similar advantages by different
approaches. In fact, several bases are used throughout the organization, but the basis used
at the highest level determines critical dimensions of the organization.

Some of the more widely used departmentation bases are described are given below. The
first base- functional, refers to internal activities of the organization. The other three
bases- geography, customer and product are external to the organization.

Departmentation by enterprise function:

Functional departmentation is grouping of same or similar activities to the function of an

enterprise, such as operations, sales, finance etc. each of these functions can be a specific
department and jobs can be combined according to them. It is the most common base for
departmentation, especially among smaller organizations providing a narrow range of
products and services.

For example, manufacturing organizations such as General Motors attracted considerable

attention when it combined its traditional product divisions into two functional
departments-production and sales and under the direction of a new Chief Operations.

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Officer (COO), GM accelerated its consolidation of its two auto divisions into one
functional organized entity.

President

Marketing Production Finance Personal Research

Diagram: A functional organization grouping (in a manufacturing company)

Advantages:

• Function based departmentation is efficient as it reflects the functions of business

logically.
• It simplifies training as supervision can be facilitated and it follows principle of
occupational specialization.

Disadvantages:

• Overall organization objectives may face risks as employees might concentrate

too much own their own unit.
• Narrow training due to high degree of job-specialization and slow decision
making.

Departmentation by geography:

Departmentation by geography is grouping of activities by area or territories. It is widely

used in companies operating over wide geographic areas. It involves a method of
covering broad-based operations by dividing them into smaller geographical units which
is assigned to a manager who will be in charge of all the activities in that area.

Geography based departmentation is used for many multi national companies such as
Nestle, which uses geography based departmentation dividing three geographical regions
(America, Europe and Asia) into three zones-zone EUR, zone AMS and zone AOA to
sell their products.

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 President

Western Southwest Central Southeast Eastern

Region Region Region Region Region

Diagram: A geographic grouping ( in a manufacturing company)

Advantages:

• Geography based departmentation enables the organization to respond quickly

to unique local environment.
• It also provides training ground for managers who can provide valuable insights
about a particular field. Thus better face-to-face communication with local
operations can be established.

Disadvantages:

• If geographic departmentation is adopted in an organization, a large

administration might be required to keep track of units in scattered regions.
• It increases problem of top management control.

Departmentation by customer group:

Customer departmentation is grouping activities to respond to and interact with specific

customers or customer groups. Many organizations such as educational institutes, retail
stores, banks, wholesale activities adopt this kind of departmentation.

For example, department stores such as wall mart is set up with men’s wear, computers,
hardware and such other departments to directly appeal to a specific type of customers.

President

Community-city Corporate banking Institutional

banking banking

Diagram: Customer departmentation (in a large bank)

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Advantages:

• Customer departmentation puts emphasis on customer needs.

• Gives customers feeling that they have an understanding supplier (banker).
• It also enables to build expertise in customer area.

Disadvantages:

• Difficulty in coordinating operations between competing customer demands

may arise.
• Requires managers and staff expert in customer problems.

Departmentation by products:

Product departmentation is the process of grouping activities according to products or

product lines. It is growing in importance in multiline, large-scale enterprises. It is the
process of delegating extensive authority over the functions related to a given product to
a division executive and thus exacting profitability from each of the manager.

For example, General Motors (GM) pioneered in this kind of departmentation when it
evolved into five separate auto divisions: Chevrolet, Oldsmobile, Pontiac, Buick and
Cadillac.

President

Chief of
operations

Chevrolet Oldsmobile Pontiac Buick Cadillac

Diagram: Simplified product departmentation in GM

Advantages:

• Product departmentation focuses on product line and facilitates use of

specialized capital, facilities, skills and knowledge.
• It permits growth and diversity of products.

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Disadvantages:

• It can cause oversimplification and redundancy.

• Requires more persons with general manger ability and creates problem of
control at top.

Matrix organization:

Matrix organization is another kind of departmentation that combines functional and

product patterns of departmentation in the same organization. Matrix organizations
achieve the desired balance by overlaying a horizontal structure of authority,influence on
the vertical structure. This kind of organization occurs frequently in construction,
aerospace, marketing etc.

Advantages:

• Matrix organizations are oriented toward end results.

• Professional identification is maintained and pinpoints product-profitability.

Disadvantages:

• In matrix organization, conflict in organization authority exists.

• Unity of the organization may be threatened.

Choosing the pattern of departmentation:

There is no single best form of departmentation that is applicable to all organizations

and all situations. The pattern used will depend on the given situations and what
managers believe will yield the best results for them in the situation they face. The
pattern of departmentation which I prefer is the product departmentation. It is more
effective than other patterns in many ways.
As a firm grows it is difficult to coordinate the various functional firms due to more
complex jobs and limitations in the span of management. At this point, establishing
product units is necessary.
The product based units are often free standing units that can design, produce,
manufacture and market their own products, even in competition with other divisions in
the same firm.
Product based organizations foster initiative and autonomy by providing division
mangers with the resources necessary to carry out their profit plans.
Companies will find certain advantages with this departmentation as it is easier to control
products. Many multi national companies adopt this departmentation.

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For example, Kodak Company uses the product-based structure to assign responsibility
for worldwide research and development, manufacturing and distribution of its products
such as digital camera, printer, scanner etc. Kodak believes that this structure enables
managers to respond more quickly to market situations.
It also easier to monitor performance and maintain accountability in product based
departmentation.
Product departmentation enables growth and diversity of products and services as
attention and effort is given to product lines.
For example, Boeing, an aerospace company has two large divisions which are- Boeing
Commercial Airplanes and the Integrated Defense Systems. As result of product
departmentation, Boeing has achieved a strong position in the aviation industry.

Techsmart, a hypothetical firm which manufactures and sell computer and software can
run more effectively by adopting product departmentation. It has two product based
departments at the highest level of the firm. One is responsible for all activities associated
with personal computer business, and the other handles the software business.

President

Computers Software

Operations Finance Sales Sales Finance Design

Diagram: product departmentation in Techsmart

Although product departmentation has some drawbacks such as increasing administrative

costs and causing difficulty in problem of top management control, because of its
effectiveness in large enterprises for enhancing speed of decision making as well as
enabling growth of products and coordination of functional activities, it is the type
departmentation which I would more likely choose.

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