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Advantages and Disadvantages of Departmentalization | Business Basics

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Advantages and Disadvantages of Departmentalization

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Advantages and Disadvantages of Departmentalization


Feb 21st, 2013

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Advantages and Disadvantages of Departmentalization

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Departmentalization is the dividing of organizational functions (design, marketing, etc.) into separate
units. The traditional way to departmentalize organizations is by function. Functional structure is the

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grouping of workers into departments based on similar skills, expertise, or resource use. A company

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might have, for example, a production department, a transportation department, and a finance
department. Departmentalization by function enables employees to specialize and work together

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efficiently. It may also save costs. Other advantages include the following:

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1. Employees can develop skills in depth and can progress within a department as they master those skills.
2. The company can achieve economies of scale in that it can centralize all the resources it needs and locate
various experts in that area.

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3. Theres good coordination within the function, and top management can easily direct and control various
departments activities.

As for disadvantages of departmentalization by function,

1. There may be a lack of communication among the different departments. For example, production may be so
isolated from marketing that the people making the product do not get the proper feedback from customers.

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2. Individual employees may begin to identify with their department and its goals rather than with the goals of the
organization as a whole. For example, the purchasing department may find a good value somewhere and buy a
huge volume of goods that have to be stored at a high cost to the firm. Such a deal may make the purchasing

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department look good, but it hurts the overall profitability of the firm.
3. The companys response to external changes may be slow.
4. People may not be trained to take different managerial responsibilities; rather, they tend to become narrow
5. People in the same department tend to think alike (engage in groupthink) and may need input from outside the
department to become more creative.

Alternative Ways to Departmentalize Functional separation isnt always the most responsive form of
organization. So what are the alternatives? Figure 8.5 shows five ways a firm can departmentalize.
One form of departmentalization is by product. A book publisher might have a trade book department
(books sold to the general public), a textbook department, and a technical book department.
Customers for each type of book are different, so separate development and marketing processes
must be created for each product. Such product-focused departmentalization usually results in good
customer relations.
It makes more sense in some organizations to departmentalize by customer group. A pharmaceutical
company, for example, might have one department that focuses on the consumer market, another
that calls on hospitals (the institutional market), and another that targets doctors. You can see how
the customer groups might benefit from having specialists satisfying their needs.

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Some firms group their units by geographic location because customers vary so greatly by region.
Japan, Europe, and Korea may involve separate departments. Again, the benefits are rather obvious.
The decision about which way to departmentalize depends greatly on the nature of the product and
the customers served. A few firms find that its most efficient to separate activities by process. For
example, a firm that makes leather coats may have one department cut the leather, another dye it,
and a third sew the coat together. Such specialization enables employees to do a better job because
they can focus on a few, critical skills.
Some firms use a combination of departmentalization techniques; they would be called hybrid forms.
For example, a company could departmentalize simultaneously among the different layers by function,



Advantages and Disadvantages of Departmentalization | Business Basics

by geography, and by customers.

The development of the Internet has created whole new opportunities for reaching customers. Not
only can you sell to customers directly over the Internet, but you can also interact with them, ask them
questions, and provide them with any information they may want. Companies must now learn to
coordinate the efforts made by their traditional departments and their Internet people to create a
friendly, easy-to-use process for accessing information and buying goods and services.7 The firms
that have implemented such coordinated systems for meeting customer needs are winning market
Progress Assessment
Why are organizations becoming flatter?
What are some reasons for having a narrow span of control in an organization?
What are the advantages and disadvantages of departmentalization?
What are the various ways a firm can departmentalize?
Critical Thinking
Given the limitations of departmentalization, businesses are now trying to redesign
their structures to optimize skill development while increasing communication among
employees in different departments. The goal, remember, is to better serve customers
and to win their loyalty. What kind of skills and attributes might you need to prepare
yourself to work in such an organization?








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