Departmentation: Meaning, Importance, Process, Need, Principles, Types, Merits

Departmentation refers to the grouping of operating tasks into jobs, the combining of jobs into efficient work groups and combining of groups into divisions called as ‘Departments’.

Departmentation refers to the horizontal differentiation in an organisation. It is a method of arranging activities and employees to facilitate the accomplishment of overall objectives.

Departmentation, in short can be said to be a part of organisation process. This process involves dividing and grouping of activities of an enterprise into viable divisions or departments for improving the performance in the organisation.

According to Koontz and O’Donnell, “A department is a distinct area, division or branch of an enterprise over which a manager has authority for the performance of specified activities”.

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Simply stated, Departmentation is the process of classifying or grouping of activities of an organisation into different units and sub-units with the aim of carrying out the activities efficiently for achieving the overall objectives.

Learn about:- 1. Introduction to Departmentation 2. Meaning of Departmentation 3. Definitions 4. Factors 5. Importance and Need 6. Process 7. Ways 8. Phases 9. Bases 10. Principles 11. Types 12. Merits.

Departmentation: Meaning, Definitions, Factors, Importance, Process, Types, Phases, Bases, Principles and Merits

Departmentation – Introduction

Departmentation or Departmentalisation, is grouping of organisational activities into jobs. Thereafter combine jobs into effective work groups and coordination of these groups into divisions. In other words, it is a process of grouping activities of an organisation into a number of separate units for the purpose of efficient functioning.

According to Koontz and O’Donnell, a department designates a distinct area, division or branch of an enterprise over which the manager has authority for performance of specified activities.

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Louis Allen states, “Divisionalisation is a means of dividing the large and monolithic functional organisation into smaller flexible administrative units.”

Consider three pronged activities – Production, Marketing and Finance which are three important departments of an enterprise/organisation. If these departments function efficiently, they can bring every credit to the organisation. Bifurcation of an enterprise into smaller departments makes it easier for a manager to get acquainted with job details and performance. This can bring better results in supervision of work.

Divisional structure is one wherein a firm is divided into different business units or divisions. Each division is established as a self-contained and a largely autonomous unit. It primarily focuses on its own functions. Each unit may even compete with other units under the same management.

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However, each unit does not have a separate entity status. It is accountable to the parent organization. A central agency will be there to frame strategy for overall development of the firm. It provides certain support services to divisions like capital allocation, legal advice, transferring skills, sharing vital information and so on.

The central agency decides matters relating to creation of fresh divisions, merging existing divisions, nature of relationship between divisions and headquarters in terms of supervision and control and so on. Most of the MNCs operate on divisional designs. For example, Procter & Gamble, Johnsons and Johnson, Colgate Palmolive, Reliance etc., are pursuing divisional structure. Such business divisions are called Strategic Business Units (SBU).

Departmentation – Meaning

Departmentation refers to the grouping of operating tasks into jobs, the combining of jobs into efficient work groups and combining of groups into divisions called as ‘Departments’. It refers to the horizontal differentiation in an organisation. It is a method of arranging activities and employees to facilitate the accomplishment of overall objectives.

According to Koontz and O’Donnell, “A department is a distinct area, division or branch of an enterprise over which a manager has authority for the performance of specified activities”. Simply stated, Departmentation is the process of classifying or grouping of activities of an organisation into different units and sub-units with the aim of carrying out the activities efficiently for achieving the overall objectives.

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The process of organising involves identification of activities necessary to attain in objectives of the enterprises and grouping of similar activities on some logical basis. The process of dividing and grouping related activities into units and sub-units for the purpose of administration is called departmentation. The units are designated as divisions, units, branches, sections jobs etc. Such units are managed as relatively independent administrative units and accountable for their own objectives.

The enterprise has to perform various tasks. These tasks can, at times, be in a chain of jobs. But generally they can be divided in number of jobs. If so, personnel to undertake such jobs are also to be grouped. Each such job along with a group of workers can be taken as a unit. If such a unit is efficiently manageable by supervisor for administrative purpose, it can be identified as either a section, or a unit. Similar such units are grouped together to form a department.

There can be number of departments in an organisation. Thus ‘Departmentation’ can be the process of analysing dividing and arranging work or activities into manageable portions for individuals. Thus departmentation is the organisation wide division of work. Logical grouping of activities gives us – (i) individual jobs (ii) sections and (iii) departments.

Departmentation is a process of grouping various activities into separate units. The process of departmentation of any enterprise consists of defining and enumerating individual tasks, grouping and classification of tasks, delegation of authority for their accomplishment and specification of authority relationships between managers. The term department refers to a distinct area, sphere, division or branch of an enterprise over which a manager has authority for the performance of a specific group of activities entrusted to him.

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Departments are various parts of divisions of an enterprise. Departmentation is used to group various business functions and also personnel who will perform these functions. In other words departmentation is the process of division of enterprise into different parts known as departments.

Departmentation or divisionalisation of the total activity into various self-contained units is an important thing in the development of organisation. This grouping of similar activities into small units for the purpose of facilitating administration is called departmentation. According to Koontz and O’Donnell departmentation is a process of dividing the large monolithic functional organisation into smaller and flexible administrative units. Thus departmentation is an integral part of the overall process of organising.

It involves the horizontal expansion of the organisation. It creates smaller administrable units called departments. A department is a distinct area of activities over which a manager is given authority and for which he has to accept responsibility. Thus it is functional divisionalisation of the organisation. These departments may be called sections, units, branches or divisions also.

Departmentation is concerned with the grouping of the various activities into separate administration units. Departmentation is not an end in itself but it is simply a method of arranging similar activities to achieve organizational objectives. Growth of the enterprise as well as the principle of specialization is the genesis of departmentation. The basic theme of departmentation is dividing the whole work into many groups on the basis of similarity of work and allotting group to a specialized and proficient worker.

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Division of work on the basis of specialization is known as departmentation and the work groups thus established are called departments. For example, a manufacturing concern can have production, marketing, financial and human resource department. Various patterns of departmentation are prevalent in the business world. The most common, patterns are grouping by functions, products, process or customer.

Departmentation – Definitions (Given by Eminent Authors)

In any organisation several activities are performed. It is not possible for one man to perform all the activities. Hence, activities are identified and grouped and, accordingly, people are appointed to perform specific jobs. In a small enterprise, jobs are assigned without dividing the enterprise into several units.

But when the same enterprise grows in size and becomes a big or giant enterprise it would not be possible to follow the old pattern. The enterprise, due to larger size, makes formal divisions or departments and every department is taken care of by qualified managers. Thus, department comes into existence by grouping the activities or operations.

Several authors have defined the term ‘departmentation or divisionalisation.’

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Here, we present a few definitions:

“Departmentation is the process of grouping activities into units for purposes of administration.” —William H. Newman

“Departmentation is the process of grouping the various activities into separate units.” —Theo Haimann

“Divisionalisation is a means of dividing the large and monolithic functional organisation into smaller, flexible administrative units.” —Louis A. Allen

“Departmentation is not an end in itself but it is simply a method of arranging activities to facilitate the accomplishment of enterprise objectives.” —Koontz and O’Donnell

Thus, the process of departmentation leads to more than one department. “A department,” according to Haimann, “is a distinct area of activities over which a manager has been given authority and for which he has accepted responsibility.”

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According to Koontz and O’Donnell, “Departmentation is a process of dividing the large monolithic functional organisation into smaller and flexible administrative units.”

It refers to division of a large organisation into small parts so that there is administrative convenience in handling the work connected with the accomplishment of the objectives of the organisation.

Departmentation is the process of grouping various activities into separate departments. It is a process of dividing and sub-dividing each activity into small jobs and further grouping them into administrative departments. Departmentation is an essential part of the organizing process. The formal structure of organization is created through the process of departmentation. It facilitates efficient performance of departmental activities to achieve overall organizational objectives.

Departmentation is a means of dividing large and complex organization into smaller and flexible administrative units. It involves horizontal differentiation of activities in an enterprise. The differentiation of activities brings in specialization and managerial convenience. It ensures suitable span of control. It fixes the scope of authority and responsibility of the departmental heads.

‘Departmentation is the means of dividing a large and monolithic functional organisation into smaller and flexible administrative units.’ – [Louis A. Allen]

‘Departmentation is the grouping of jobs, processes, and resources into logical units to perform some organisational task.’ – [Pearce & Robinson]

‘Departmentation is the grouping of activities and the employees into logical departments.’ – [H. Koontz & O’Donnell]

‘Departmentation is the grouping of work functions in such a manner so that similar activities occur together.’ – [James & Stonier]

Koontz and O’Donnell, “A Departmentation is a process of dividing the large monolithic functional organisation into small and flexible administrative units.”

Departmentation refers to the classification of activities on operations of an undertaking into functionalised categories.

Departmentation is an essential one in the modern business world. All the business activities cannot be looked after by a single individual. The classified activities bring in specialisation and managerial convenience. It ensures suitable span of control. Departmentation is created in product-wise, process-wise or area-wise. It ensures proper directions to and control on them.

Departmentation – 9 Important Factors which Should be Considered by the Management at the Time of Making Basic Departmentation

Following are important considerations or factors which should be considered by the management at the time of making basic departmentation:

Factor # 1. Specialisation:

Whatever may be the pattern of departmentation it should be such as to yield the advantages of specialisation. Benefits of specialisation can be secured by function and occupational specialisation together. It means a proper person must be matched with the post.

The management should group the activities into various units in such a way which leads to specialisation of work. Specialisation brings about many economies in the business. Therefore, it is an important consideration while choosing a particular method of departmentation but over specialisation should also be avoided because it will result in loss of motivation among the personnel.

Factor # 2. Co-Ordination:

Co-ordination is necessary to ensure that different activities contribute maximum towards the achievement of common objectives. To facilitate co-ordination, different activities requiring different skills may be grouped together under a single executive incharge of a small department because they need to be co-ordinated for effective performance. They should be co-ordinated in such a manner that may not cause inconvenience in their performance.

Factor # 3. Control:

That departmentation is the best way which ensures the tight control, as a general rule, one activity intended to serve as a check on another, should be under a separate executive. Physical convenience of supervision should also be kept in mind as an aspect of control while grouping the activities.

Factor # 4. Significance of Activities:

An activity which is considered to be the basis for the success of an enterprise must be given proper attention. It should be assigned to a separate department at significant level of management in the overall organisation.

Factor # 5. Appreciation of Key Areas:

All the important areas of the business on which the success of the business depends must be given proper weightage. That is why, in practice, function is taken at the top of the organisation structure. Separate departments are created for important functions like production, financing, marketing etc.

Factor # 6. Full Recognition of Local Conditions:

The management should take local condition also into consideration. They are the personalities of individuals, the nature of organisation, the pattern of informal relationships in the organisation, the attitude of management towards, the market to be served etc.

Factor # 7. Minimum Conflicts:

Jurisdiction of the departments should be clearly laid down and there should be no conflict among them. The authority of the managers of different departments should also be clearly specified.

Factor # 8. Economy:

This factor influences to a great extent the number of departments to be created. Creation of a new department increases various costs. This is because the new department requires additional personnel, space and equipments. Therefore management should see that the departments created make the best possible use of these factors and that maximum economy is achieved in creating the departments.

Monetary and non-monetary costs that are involved in creation of number of departments for any special activity should also be considered. But efficiency of the organisation should not be at stake for costs only. Relative efficiency and costs should be compared.

Factor # 9. Human Considerations:

The management should not overvalue the technical aspects of departmentation. Social aspects also have important impact on departmentation. The availability of competent managerial personnel at different levels, their attitude towards work and the managerial attitude towards personnel will also influence the way the activities are departmentalised in an organisation. Existence of informal groups, cultural patterns, value system etc., should not be lost sight of, at the time of grouping the personnel.

In short, whatever may be the basis, the departmentation should be directed to promote the attainment of organisational objectives economically and efficiently.

Naturally mangers concerned with taking such a decision have to consider relative advantages and disadvantages of various types of departmentation in the light of the needs of the organisation. In practice, in many cases, it is not feasible to follow a single basis in grouping the activities throughout the organisation. Most of the big organisations follow schemes of departmentation that are a composite of several bases. Thus we see that departmentation is not an easy task.

It is a radical procedure which requires a careful consideration of various factors before proceeding to actual grouping of activities. If it is to be accomplished successfully, it should be treated as an important task. Otherwise it may create more problems than it solves. Thus there is no ideal pattern to suit all occasions and situations.

It requires certain preparations on the part of management such as proper decentralisation of authority, enforcing adequate control, providing ground for management development and the communication network etc. Various factors of departmentation do not provide much guidance for deciding a method. The final decision will depend upon the foresight and initiative of the top management.

Therefore, the management has to be very careful and use high degree of imagination at the time of choosing a pattern of departmentation. Once a pattern is chosen, it is very difficult and costly to switch over to another pattern.

Departmentation – Importance and Need

The management of an enterprise is made more effective by departmentation. It would be a very complex task for the management without dividing the organisation into units and sub-units.

It is necessary on account of the following reasons:

1. Specialisation – Departmentation enables the enterprise to avail the benefits of specialisation. The work is divided into different departments. When every department looks after one major function, it leads to increase in operational efficiency of the organisation.

2. Administrative control – Grouping of activities into manageable units facilitates administrative control. The standards of performance of each department can be precisely determined, against which actual performance can be measured and corrective measures can be taken.

3. Fixation of responsibility – Each person knows the specific task that they have to perform in the organisation. The responsibility of the work can, therefore, be precisely fixed and the individual can be made accountable for his performance.

4. Expansion – One manager can effectively supervise a limited number of subordinates. Departmentation makes it possible for the enterprise to grow and expand. In the absence of departmentation, the size of the organisation will be limited to the manager’s span of control.

5. Appraisal – When the tasks allotted to individuals are clearly specified, appraisal of managerial performance is simplified. The skills and competence required for managerial decisions can be easily identified.

6. Managerial development – It provides opportunities for the training and development of the executives. They can exercise initiative and take independent decisions. The managers can improve their skills, leading to their development in the organisation.

7. Autonomy – Departmentation results in the division of organisation into small units. Every manger is given the adequate freedom to run these units or departments. The feeling of autonomy provides job satisfaction and motivation leading to higher efficiency in operations.

Departmentation – Process of Departmentation may be Divided into the following Three Stages

Departmentation involves grouping of all operating tasks into jobs, combining of jobs into effective work groups and combining all groups into divisions so often termed as “departments”. Grouping of activities into department is a part of the process of setting up organisations and of expanding them to any degree, the impact of departmentation is a delineation of executive responsibilities and grouping of operating activities.

Every level in the hierarchy below the apex is departmentalised and each succeeding lower level involves further departmentalisation. Grouping of activities into manageable units is necessary at all levels in the enterprise. The chief executive groups activities into major divisions such as production, marketing, finance etc. These divisions are administered by senior executives who report directly to the chief executive.

The senior executives further assign duties to their juniors, for example, the marketing manager may divide his activities on the basis of operations like advertising, marketing research, customer service and so on. At the lower level there may be sales assistants, sales representatives etc.

Thus in terms of the level of management at which departmentation is to be done, the process of departmentation may be divided into the following three stages:

1. Primary departmentation – Initial break up of organisational functions into basic activities such as production, finance, marketing etc.

2. Intermediate departmentation – Creating departments in the middle levels of the organisation.

3. Ultimate departmentation – Dividing activities into separate units at the lower level to create sections and sub-sections.

Main purposes of Departmentation –

i. To promote the attainment of overall organisational objectives.

ii. To simplify co-ordination

iii. To effect economics of scale and exploitation of special opportunities.

iv. To assist in executive development.

The various steps involved in departmentation are:

1. To identify task or duties,

2. To analyse details of each task,

3. To describe the functions or to group similar activities,

4. To entrust the grouped activities to departmental heads, and

5. To define the authority and responsibility of departmental heads.

Departmentation – Departmentation Helps in Increasing the Efficiency of the Organisation in the Following Ways

Departmentation is essential for an organisation to put a limitation on the number of sub-ordinates to be supervised by a superior. It is the Departmentation and personnel working therein, makes it possible to expand an organisation to an indefinite degree.

Further, the departmentation helps in increasing the efficiency of the organisation in the following ways:

(1) Specialisation is Possible:

Departmentation on grouping of organizational activities is done mostly on the basis of various functions to be performed by an organisation. Two basic principles are followed for this purpose-(a) division of labour, and (b) specialization. These two factors make the organisation more efficient.

(2) Feeling of Autonomy:

Departments serve as a semi-autonomous body within an organisation. The departmental heads work as an independent supervisor within the organizational system, though according to rules, regulations, procedure and principles set down by the organisation towards achieving the common goals.

They feel themselves more independent and this feeling of autonomy provides satisfaction (at least ego-satisfaction) to them which in turn increases their efficiency and effectiveness.

(3) Fixation of Responsibility:

Departmentation divides work in units and sub-units. The work to be performed by a unit is clearly defined by the organisation so that the responsibility can be fixed accurately.

The authority is also delegated to the managers of the department corresponding to their responsibility. When the responsibility and authority are clearly prescribed, the departmental heads know what is expected of them within the limits of their authority. It makes managers more effective.

(4) Management Development:

In a department the activities to be performed by the department are fixed and they relate to one specialized function, i.e. the personnel department is concerned only with the development personnel in the organisation. This specialization of work makes the managers efficient in their own field. They take independent decisions regarding their work and it proves them worthy of higher position.

They develop themselves by going into depth of the problems faced by them and sometimes develop guidelines for future. Further, jobs are specified, their areas are already defined, training can be provided to them by the organisation for their development.

(5) Facility in Appraisal:

Appraisal of managers of various departments can be possible through departmentation on the basis of standards set down by the organisation. Their success or failure can be identified more easily and accurately. They themselves can appraise themselves in the light of standards set.

Thus, departmentation or grouping of activities is an essential ingredient of an organisation without which an organisation cannot run efficiently and effectively.

Departmentation – Diverse Activities which Should be Associated with a Relative Department

Diverse activities should be associated with a relative department in the achievement of the enterprise purpose on the following phases:

1. Maximum Use:

The term maximum use means that a given activity will be attached to the major department which makes most use of it. For example, the usage of warehouse and the entire traffic management might be placed within the production department.

2. Interest:

A superior is requested to look after a new activity if he is also most willing and able to serve. For example, a person who is working in the sales department prefers to work in the accounts department. If such a chance is offered to any person, he can perform the activities with great interest.

3. Competition:

The prevailing competition among the departments is a desirable one. Team spirit may also be developed whenever the grouping of activities takes place. Here, competition refers to the prevailing competition between two sales departments or production departments within the same organisation.

Sometimes, a sister concern may be engaged in the similar type of business. Competition destroys the enterprise as a whole, if a single person is appointed to work for the elimination of competition between parent and sister concerns. In other words, a single sales manager is expected to perform the sales activities for both parent and sister concerns.

4. Policy Matter:

A particular activity may be assigned to a department which evinces more interest in the unit. For example, the sanctioning of the credit to customer and collection of debt from debtors may be given to the finance department in lieu of sales department as a matter of policy in an organisation.

5. Separation:

The maximum division of activities involves high cost of operation to the management. But it is essential that a separation is preferable when an activity is complicated by several functions.

6. Proper Attention:

Proper attention should be given to certain activities to keep them from dying under adverse circumstances. If an ordinary activity is assigned to the higher officials who do not consider it important, they will not derive satisfaction in the performance of such ordinary activity. So, this type of ordinary activity should be assigned to somebody else.

7. Co-Ordination:

If the organisation’s activities are grouped into several departments, there is a need of co-ordination of various activities. Such a co-ordination work may rest with the general manager.

Departmentation – Bases for Creating Departments

Since departmentation involves grouping of similar activities together, managers, often, come across with the problem about the basis on which similarity of activities should be defined. There are several bases of departmentation. However, the more commonly used bases for creating departments or divisions at sufficiently higher level are – function, product, territory, process, and customer. Some of these bases are internal operation-oriented like function and process while others like product, territory, and customer are output-oriented.

1. Function:

The grouping of similar activities to form a department is known as functional departmentation, that is, the departments are created on the basis of organizational functions. Since functional departmentation can be adopted at various levels of the organization, the various functions of the organization are divided into basic and secondary functions.

Basic Functions:

The basic or major functions are those which are essential for the organizations and their operations contribute to the organizational efficiency. These functions are known as ‘organic functions’ because their performance is vital and essential to the basic survival of the organization. For example, in a manufacturing organization, basic functions may be production and marketing. Similarly, in a finance company, financing activities (raising and disbursing financial resources) may be basic functions. Thus, basic functions are determined on the basis of their importance to the achievement of organizational objectives.

Secondary Functions:

Secondary functions, also known as sub-functions, are those functions which are derived from a basic function. Sections or units are created for each important secondary function to take advantages of specialization. For example, marketing department may be created at the top level which may contain sections for sales, marketing research, product promotion, etc. A secondary function may be further divided like product promotion into advertising, personal selling, sales promotion, etc.

Besides the basic and secondary functions which contribute directly to achieve organizational objectives, departments/sections are created for performing those functions which provide support to basic functions. These are known as staff functions. Such functions are related to finance, human resources, information technology, legal matters, etc. Functional basis of departmentation leads to efficiency because of specialization of functions. However, no department is responsible for end results of the organization because each department concentrates on its own working and its end results.

2. Product:

Product departmentation involves grouping of activities necessary to produce a product or product line. Product basis of departmentation is followed when an organization has two or more products which are of different nature but require almost the same degree of attention, for example, manufacturing cement and textiles by the same organization. Product departmentation offers several advantages, particularly to an organization having multiple products or operates in a single industry with products for different uses, for example, an automobile company manufacturing trucks and cars.

This basis of departmentation focuses attention on products, reduces problems of coordination for different products, provides opportunities for further diversification and expansion of organization, and provides product specialization. However, it presents problems at the top management level for coordination, multiplicity of efforts because of requirement of same functional facilities for different products, and problem in maintaining economical central staff services.

This is the reason that organizations having multiple products prefer to combine product and functional bases. For example, Hindustan Unilever has two product divisions – foods and home and personal care and four functional divisions – supply chain, sales and consumer care, finance, and human resources.

3. Territory:

Territorial or geographical departmentation is useful to large-sized organizations having activities which are geographically spread such as banking, insurance, transportation, etc. In such a case, all the activities in a given area of operations are grouped into zones, divisions, branches, etc., for example, Indian Railways, Life Insurance Corporation, etc. The basic logic of territorial departmentation is that when markets are widely dispersed, an improved cost- profit situation will emerge if all activities affecting a product line or service in a specific geographical region are grouped together.

Territorial departmentation provides certain efficiency in operation. Knowledge of local conditions is an important element in effective management. Moreover, some costs of operations can be saved, for example, serving of customers at different locations. The corresponding facilities are created looking into the needs for local conditions.

Further, it may provide training to managers to look after every aspect of organizational operations and develop general management skills. However, territorial departmentation presents certain problems like communication problems and distance between policy framers and policy executors.

4. Process:

In process departmentation, processes involved in production of a product are taken as basis for departmentation. For example, an organization manufacturing textiles creates department for each process of manufacturing textiles – spinning, dyeing, weaving, and finishing. The basic purpose of process departmentation is to take advantage of specialization which is involved in each process. However, it presents problem of coordination because the work of each process is dependent fully on the entire process. Therefore, there are chances of conflicts among managers looking after different processes.

5. Customer:

Customer-based departmentation is basically market-oriented in which departments are created on the basis of markets served or distribution channels used. While both these bases are used to emphasize marketing and make it more effective, they differ in some respects.

Grouping of activities based on markets served supports marketing efforts for different types of customers, for example, a pharmaceutical company supplying its products to hospitals, government, retail stores, etc. Grouping of activities based on distribution channels used supports the ways in which an organization reaches an ultimate customer- wholesale, retail, export, etc.

The major advantage of customer departmentation is that it focuses on customers who are the ultimate suppliers of money to the organization. Therefore, different types of customers can be satisfied easily through specialized staff as well as the channels through which the product reaches them.

However, this basis of departmentation may have certain disadvantages, specially when it is followed very rigidly. Coordination between marketing and other organizational functions becomes difficult because this basis can be followed only in marketing. Besides the above bases of departmentation, minor units or sections may be created on the basis of time – day shift, night shift, etc. to take advantage of people specialized to work in a particular shift. Units may also be created on the basis of alpha-numeric, for example, gang 1, 2 or A, B in a construction company.

Choice of Basis of Departmentation:

The above discussion shows that each of the bases of departmentation has its advantages and disadvantages and is suitable for particular types of organizations.

Therefore, basis of departmentation should be chosen after considering the following factors:

1. Specialization:

The basis of departmentation should reflect specialization in performing the work. Since specialization leads to efficiency in work performance, that basis should be chosen which results in specialization.

2. Coordination:

Coordination implies that all the related activities are performed in a way that their performance is synchronized so that each activity contributes to others positively to achieve objectives. Degree of coordination increases when closely related activities are grouped together. Therefore, that basis of departmentation should be chosen which puts closely related activities together.

3. Control:

Control involves analyzing whether the intended results are being achieved by various departments or not and taking corrective actions to improve work performance. Control actions and their effectiveness depend on the way in which activities are grouped into departments.

More clearly-defined activities make control easier. Therefore, that basis of departmentation should be chosen which ensures grouping of activities having similar contributions together.

4. Economy:

A balance should be maintained between the cost of creating a department and its contribution. The existence of a department is desirable only when it contributes more than its cost. Therefore, this aspect should be taken into account while choosing a basis of departmentation.

5. Focus on Results:

While choosing basis of departmentation, relative importance of various activities towards achieving the desired results should be kept in mind. Thus, the basis of departmentation which attaches higher importance to activities contributing more towards achieving the desired results should be chosen.

6. Local Conditions:

While choosing basis of departmentation, adequate consideration should be given to the requirements of local conditions. This is more important to those organizations which operate in different geographical areas.

7. Human Consideration:

Basis of departmentation should also take into consideration the human factor in the organization. Therefore, along with technical factors, departments should be created on the basis of availability of personnel, their aspirations and value systems, need for informal work groups, and attitudes of people towards various bases of departmentation.

Departmentation – 10 Important Principles

The important principles of departmentation are as follows:

Principle # 1. Specialization:

The activities of an organization should be grouped so as to lead to specialization. This leads to economy of labour and cost. It promotes efficiency.

Principle # 2. Co-Ordination:

The process of grouping the activities requires convergence at some point called ‘co-ordination’. The divergent activities performed at different functional departments should be such that they can be coordinated with ease. Coordination is expected to accomplish the overall goals of the organization.

Principle # 3. Control:

The pattern of departmentation should achieve effective control of the different functional department. The functional heads, though they enjoy autonomy, are accountable for performance of their own domain. The performance of each functional department should be capable of being evaluated and appropriate measure should be taken to regulate its functioning.

Principle # 4. Interdepartmental Cooperation:

The activities undertaken to be performed are distinct from, one department to another. But the very activity cannot be performed without the support of the other departments concerned. Hence departments should have cordial relations with one another. The inter-dependency among the departments emphasizes on closer cooperation in place of mutual confrontation.

Principle # 5. Cost Benefit:

The creation of departments should be preceded by cost benefit analysis. The benefit expected to be derived from the departments should be great enough to justify their creation. Otherwise organizational profitability would be the first causality.

Principle # 6. Duplication of Work:

Departmentation must help to eliminate duplication of work and overlapping of activities. In other words, an employee should not be made to report to two bosses under any given circumstance.

Principle # 7. Special Attention:

Departments which create more value addition should be given more weight. They are called Key Result Areas (KRA) or Strategic Business Unit (SBU). These units influence the survival and growth, of an enterprise.

Principle # 8. Human Consideration:

Departmentation should not only factor in technical aspect but also human aspect of the organization. The existence of informal groups, cultural pattern, value system, attitudes of human resources etc., should be given due attention. In short, attention to human element will make significant difference in performance efficiency of the department.

Principle # 9. Flexibility:

The departmentation exercise should not be a rigid one. The departments should be such that it can be closed in case of its redundancy or a new one can be established in response to the emerging needs from environmental dynamics.

Principle # 10. Utilization of Resources:

Departments should be created to harness the full utilization of resources with the organization. There should not be duplication of efforts or wastage of resources in the name of creation of unnecessary departments. Departments should be created in the light of need and the availability of resources therefor.

Departmentation – Top 8 Types of Departmentation (With Advantages and Disadvantages)

There are many alternative patterns for grouping organisational activities. Departmentation can be done by enterprise, by territory or geography, by production, by kinds of customers served or by a combination thereof.

Type # 1. Departmentation by Function:

This is the most common basis of departmentation of an enterprise. All the activities of similar nature are grouped under one department. An enterprise can create its departments on the basis of functions to be performed like production, marketing, human resource, finance, etc.

Each department is under the charge of a departmental head or manager who is appointed to control and supervise the activities of the concerned department. All the departmental heads are specialists in their own area. It may be possible that the major department is sub-divided into sub-departments.

For instance, the activities in the production department may be divided into order processing, quality control, repairs and maintenance, etc. This process of functional classification continues as long as there exists a basis for further differentiation. Functional departmentation is the widely used basis for grouping the activities. It exists in all organisations at some level.

The main advantages of the functional departmentation are as follows:

1. Functional departmentation brings about specialisation leading to optimum utilisation of human and material resources.

2. It facilitates delegation of authority and reduces the burden of the chief executive.

3. It facilitates co-ordination within the departments and at the inter-departmental level in the organisation as a whole.

4. It eliminates the costly duplication of efforts leading to efficiency in operations.

5. It lays emphasis on the performance of all the activities necessary for achievement of organisational objectives.

6. It facilitates training and development of the managers as they need to be experts in their own limited area.

The functional departmentation has the following drawbacks:

1. Excessive specialisation in the organisation may affect the teamwork. When each employee is specialised in a limited job, he cannot take a balanced view of the broad organisational objectives.

2. It may be difficult to co-ordinate the activities of different departments because the employees narrow their focus to the department. There is inflexibility and complexity in operations.

3. Decision making involving two or more departments is delayed.

4. There may be conflicts between departments as the responsibilities are interrelated and interdependent.

5. Each department concentrates on its own functions only at the expense of organisational goals.

6. Functional department restricts the development of the managers with varied skills and does not promote innovation and creativity.

7. This structure is not suitable for handling multiple products or projects.

Type # 2. Departmentation by Product:

In product departmentation, every product is organised as a separate department. Each department looks after the functions like production, finance, marketing, human resource, etc., of one product. Product departmentation is employed when the enterprise deals in complex and diverse product lines requiring specialised knowledge.

A huge amount of capital is required for investment in plant and equipment like automobile and electronic industries. Each department is independent and responsible for its performance. The departmental manager is responsible for the success or failure of his product department.

The advantages of product wise departmentation are as follows:

1. It can reduce the problem of co-ordination as all functions relating to particular product are placed under one department.

2. It directs attention towards each product line facilitating product expansion and diversification.

3. The performance of each product can be easily evaluated. Responsibility for the performance of the product can be fixed on the concerned product managers.

4. It permits maximum use of specialised production facilities leading to specialisation in a product.

5. Product departmentation permits greater flexibility.

6. It provides an excellent training ground for the managers as each product department performs different functions.

The disadvantages of product departmentation are as follows:

1. There are conflicts between the product and other departments as the responsibilities are inter-dependent.

2. There is duplication of physical facilities and functions; as each product has its own specialised functions, resulting in higher operating costs.

3. When the demand for a particular product declines, there is underutilisation of plant capacity.

4. The product manager may work in the interest of his own product department ignoring the overall goals of the organisation.

5. Top management may find it difficult to effectively control the product departments.

Type # 3. Territorial Departmentation:

Territorial departmentation is appropriate in organisations that have business operations in different geographical locations. For instance, an insurance company, a bank, a chain store, etc. have their business spread in many locations throughout the country.

All activities of a particular territory are assigned to one department. The activities are classified into zones, districts and branches. Each region has a regional manager. It is suitable for large scale enterprises or the companies whose business is geographically dispersed.

Departmentation by territory offer following advantages:

1. It helps in enjoying the benefits of economies of local area operations.

2. It facilitates the expansion of business into various regions.

3. There is better co-ordination of activities as the regional managers look after all the operations of that division/ region.

4. Since managers are aware of local customs, styles, preferences, etc., they can respond to the local conditions more effectively.

5. It provides an opportunity to train managers as they perform all the functions of that division.

The disadvantages of territorial departmentation are as follows:

1. It is difficult to find efficient managers having knowledge of all the functional areas.

2. There is duplication of physical facilities resulting in high operating costs.

3. Administrative control and co-ordination of different regional divisions by the top managers becomes less effective.

4. There may be a problem of integration of various regions.

Type # 4. Customer Departmentation:

According to this method, the departmentation of an enterprise is done according to the type of customers. For instance, a business enterprise can divide its operations into wholesale buyers and retail buyers. An airline company may divide its customers as foreign travellers and domestic travellers.

Each customer group is headed by one departmental head. The managers arrange the activities of their department as per the requirements of that customer group. It is suitable for organisations dealing in various types of customer and markets.

Customer departmentation offers following advantages:

1. The departmental managers concentrate on the needs of a particular customer group.

2. The managers develop expertise in a particular customer area.

3. Customer satisfaction enhances the goodwill and sales of an enterprise and wins the loyalty of customers.

4. Managers can focus their attention on clearly identified and potential customers of the enterprise.

Customer departmentation has following disadvantages:

1. It is difficult to co-ordinate the activities of different functions. Customer department may demand a special treatment in the form of facilities and benefits.

2. There may be under utilisation of facilities during periods of low demand.

3. There is a possibility of inter-departmental conflict due to emphasis on own department by the departmental managers.

4. The over-emphasis on customers may lead to duplication of efforts and wastage of resources.

Type # 5. Combined Departmentation:

In combined departmentation, an organisation uses a combination of two or more different bases of departmentation. In practice, because of the expansion of business and complexity of tasks, most organisations use a combination of functional, geographic or any other form of departmentation.

Type # 6. Project Organisation:

The project organisation strategy consists of a new number of horizontal departments oriented towards the completion of projects of long duration. The size of project varies from one project to another. Each project is important for the organisation. A team of specialists from different functional areas is created for each project. The activities of the project are co-ordinated by the project manager.

It is temporary organisation structure created for a specific project with a given time limit. After the project is completed, the structure is dismantled and the functional specialists go back to their original departments. The objectives of the project, its start and finishing time, and the resources required for its implementation are clearly defined. The project department staff is separate and independent of the functional department. The project managers form their own teams in addition to the existing functional departments.

The project organisation is employed in organisations where projects are subject to high standards of performance like aero-space, aircraft manufacturing, construction and professional areas like management consultants. A project team is a temporary set up. Once the project is complete, the team is disbanded and the functional specialists may go back to their previous positions or may be assigned to a new project.

The project organisation offers the following benefits:

1. Project organisation focuses attention on the complex project by unifying the diverse actions towards the completion of the project.

2. It facilitates the timely completion of the project without disturbing the normal routine work of the entire organisation.

3. Project organisation allows maximum use of specialised knowledge. Specialists are highly motivated while working on the complex projects.

4. It provides flexibility in accomplishing the work, thereby encouraging initiative and creativity on the part of the project staff.

5. Project members become versatile due to the experience in different kinds of projects.

Project organisation suffers from the following drawbacks:

1. There is lack of clearly defined responsibility, lack of communication lines and absence of standards of performance for the functional specialists. This makes the job of project manager very difficult.

2. Since there are specialists from a number of diverse fields, there is a danger of over- specialisation.

3. Every project has a completion date which makes the work environment stressful.

4. It causes a sense of insecurity among the members as they feel that they might lose their jobs once the project is completed.

5. Decision making gets complicated as there is pressure from specialists from diverse fields.

Type # 7. Matrix Organisation:

Matrix organisation has been developed to cater to the needs of large and complex organisations which require structure that is more flexible and technically oriented than the functional organisation structure. The objective is to successfully complete a series of projects.

Matrix organisation is a combination of two organisation structures- Functional and project. The organisation is divided into different functional areas, e.g., purchase, production, marketing, human resource, etc. Each function is headed by a functional manager.

The organisation is also divided on the basis of projects. Each project has a project manager. The employees have to work under two superiors. The authority of the project managers flows horizontally (across) while the authority of the functional manager flows vertically (downwards). Therefore, it is called Matrix Organisation.

The project teams are created from the functional departments and are placed under the project manager for the duration of the project. When the assignment is complete, they go back to the functional department to which they belong. The matrix organisation structure violates the principle of unity of command as each person has two bosses- the functional manager and the project manager.

This results in indiscipline, confusion, etc., adversely affecting the productivity and profitability of the organisation. It is, therefore, important to determine the nature and extent of authority of each boss for the smooth functioning of the organisation.

Matrix organisation structure is used in industries with highly complex products as in case of aerospace industry where project teams are created for specific space and weapon systems. It is also suitable for multi-project organisations like construction companies engaged in constructing different projects at the same time.

Matrix organisation offers the following benefits:

1. It facilitates proper co-ordination and control. Each project is assigned specialists from several functional areas. The project manager monitors the progress of the project to ensure its timely completion.

2. It is more flexible than the traditional functional structure. Effective exchange of information and regular interaction between the project department and the functional specialists enables the enterprise to respond quickly to the changes in market, technology, etc.

3. In matrix structure, people get an opportunity to enhance their skills and knowledge as they interact with specialists from diverse fields. It encourages creativity and widens the horizons of the personnel.

4. It provides motivation to the project staff as they use their competence for the completion of a particular project. Clear definition of responsibility and well established lines of communication helps in co-ordinating the efforts of people from various functional groups and the project manager.

5. Each project is assigned the requisite physical, financial and other resources. The personnel revert back to their functional departments on the completion of the project. There is no wastage of resources in matrix organisation. Since many projects run at the same time, there is optimum use of resources.

6. In matrix organisation, since each employee is an expert in his area, quality performance becomes possible. The emphasis is on the knowledge rather than the rank of an individual in the organisational hierarchy.

Matrix organisation suffers from the following limitations:

1. It violates the principle of unity of command as employees receive orders from the functional boss as well as the project manager. This creates confusion and gives rise to jurisdictional conflicts in the organisation.

2. In matrix organisation, people are drawn temporarily from different functional departments. Project manager does not have line authority over his group of personnel. This results in the problem of co-ordinating the efforts of the people for the project objectives.

3. Organisational relationships become very complex. Apart from formal relationships, informal group also operates in an organisation creating the problem of coordination.

4. Matrix organisation is not a homogenous and a compact group. The multiplicity of vertical and horizontal relationships may impair organisational efficiency. The functional specialists may try to emphasise their own specialisation at the cost of overall project. There is no clarity of jurisdiction of functional specialists and the project managers.

5. In the matrix organisation, working relationships are not very clear. It is difficult to balance the authority of the project manager and functional manager.

6. The employees are temporarily drawn from the functional departments and work on a number of projects over a period of time. It is difficult for the functional managers to appraise the performance of employees. The employees may find it difficult to adjust to the requirements of the new project resulting in low employee morale.

Type # 8. Network Organisation:

The network organisation is created by subcontracting firm’s major functions to separate enterprises and co-ordinating their activities by the principal firm. The data and information is shared by the participant firms electronically, i.e., via the internet. The hub organisation or the core firm maintains control over the work performed by the various sub-contractors.

The main objective of network structure is to eliminate the departments and perform specialised functions through outsourcing. These functions include manufacturing, accounting, technical, assembly, packaging, etc. The collaborating firms enter into strategic alliances, joint ventures and outsourcing agreements.

Network organisation is different from traditional hierarchical organisation structures. There is no superior- subordinate relationship and all members have equal status. Thus, network organisation is a temporary network of autonomous organisations that operate on complementary competencies. They are connected to each other via networks for developing, making and distributing products in co-operation with each other.

Network organisation has the potential of responding to global opportunities and challenges. Large industrial houses in India are shifting from traditional hierarchical structure to horizontal structure, thereby reducing the excessive formalisation of the organisation structure.

The main advantages of network structure are as follows:

1. Elimination of departmentation – The management identifies its core competency and outsources the non-core functions to other organisations. The responsibility of the management is to maintain co-ordination among the contracting firms.

2. Minimises costs – The workers are employed on temporary basis to undertake administrative work. The support services are outsourced to meet the requirements of the situation. This helps in minimising the administration costs.

3. Specialisation – In network organisation, emphasis is on the core competency in a certain area. This combination of services of all the specialised companies helps to acquire competitive advantages.

4. Flexibility – The network organisation can be adapted to meet the requirements of the changing environment of business. The management can hire employees to match the skills needed for the specialised tasks.

5. Learning new skills – The participating firms learn new skills and acquire knowledge though transfer of information.

Network organisation suffers from the following limitations:

1. Possibility of conflict – There is a possibility of conflict between the principal firm and other firms. It may be due to non-completion of the assigned task in time, deteriorated quality of work, lack of co-ordination, etc.

2. Lack of secrecy – It is difficult to maintain secrecy relating to internal matters of the business. Sometimes, it becomes essential to exchange information to maintain coordination with core business. This may result in the loss of business.

3. Difficult to co-ordinate – Network organisation is based on co-ordination. Close and effective communication among all the firms is necessary to maintain integration of all the activities to achieve common goals.

4. Increased dependency – Network organisation increases the dependency of the principal organisation on other firms for the fulfilment of various needs of the customers.

5. Loss of control – The business is required to maintain the quality of products or services for its long term survival. It is difficult in the network organisation structure to maintain control over quality and performance. This may have a negative impact on the performance of the organisation.

Departmentation – Merits of Departmentation

Departmentation helps in simplifying the task of top management. It also facilitates overall control of the functions of the enterprise.

Other merits of departmentation are discussed below:

1. When jobs are well defined and responsibilities are clearly mentioned it is easier to fix accountability for the results.

2. The efficiency of management and enterprises because everyone knows his duties and authority, well defined jobs and limits of authority help the individual’s better performance.

3. Departmental managers are given the opportunity to take initiative. Departmentation is a training device for them. They, can learn managerial skills which helps them, going higher in the hierarchy of management.

4. Departmentation facilitates better control because objectives of various departments are well known. Budgets which are one of the control mechanisms can be prepared to control the income and expenditure of different departments. Departmentation also provides a basis on which top management can co-ordinate the activities.