Departmentation

Meaning
• In simple language, departmentation is a
process of dividing activities of an
organisation into different administrative
units and sub-units.
• In the words of Louis A. Allen,
departmentation is a means of dividing a
large and monoleithic functional
organisation into smaller flexible
administrative units.
 Types of departmentation
• Functional departmentation
• Territorial departmentation
• Departmentation by products
• Departmentation by customers
• Process departmentation
Functional departmentation
Every manufacturing unit, except a small one
has to perform certain basic functions such as
Production, Marketing, Finance and Personnel.
Each of these are grouped into separate
departments such as Production Department,
Marketing Department, Finance Department
and Personnel Department. This is known as
Departmentation By Functions.
 Merits of functional departmentation

• It leads to specialisation.
• It is a logical and natural form.
• It maintains power.
• It simplifies work.
• It improves control.
• It raises efficiency.
• It helps in appointment and training of
employees.
Demerits of functional departmentation

• It reduces co-ordination between functions

• Responsibility for profit is at the top level
only.
• There are less chances of development of
general manager.
 Territorial departmentation
Along with the increase in the company’s volume of
business it may find it necessary to establish regional
factories and branch offices to meet the increasing
demand for its products/services.
These factories/offices are then given the status of
separate departments or divisions.
 Where it is suitable?
• It is suitable for banking, insurance,
transportations and distribution business,
which had wide network.
• It is proper when its purpose is to take
advantage of certain economies of
localised operation.
Merits of territorial departmentation
• It improves participation of lower level employees
• It helps in the achieving the benefit of the local
operations.
• A regional manager can understand the problems
of employees and try to solve them.
• It facilitates expansion and improves
co-ordination.
• It gives the benefit of economies of local
operations.
• It permits localised marketing activity so
that needs of the local people can be easily
known.
• It gives measurable training facility for
general manager.
 Demerits of territorial departmentation

• It creates the problem of co-ordination

among regional units.
• It increases cost of operation.
• It requires more skilled managers.
• Sometimes proper implementation of
policy is not possible.
• There exists a problem of communication
due to geographical distance.
 Departmentation by products

• An organisation is divided on the basis of

product or group of closely related
products. Each product-department is
converted into almost a self-sufficient unit.
 Merits of product departmentation
• It reduces the problem of co-ordination at
top level.
• It uses personnel skill and specialised
knowledge.
• It leads to product expansion and
development.
• Better customer service can be provided
under this system.e.g.departmental
store
 Demerits of product departmentation

• Product manager centralize all activities.

• There may be an increase in the overhead
cost.
• It is difficult to exercise effective control on
each product department.
 Customer departmentation
• Needs of different customer groups are
considered as a key element for making
departments.
• The main objective of this departmentation
is to provide specialized services to various
customers.
• For example, male garment, female
garment and children garment
 Board Of Directors.

Managing Director.

General Manager.

Finance. Production. Marketing. Personnel.

Foreign Buyers.Dealers/Retailers.Manufacturers. Defense Department.Public Undertakings.

Merits of customer departmentation

• It focuses on customer needs.

• It provides greater satisfaction to
customers.
• Efforts at sales promotion can be planned
more scientifically.
• This method is most suitable when a
product is to be sold through several
channels of distribution.
Demerits of customer departmentation

• The manager is in the constant pressure to

serve the special customer in a better way.
• Customer groups may not always be
clearly defined.
• Co-ordination becomes difficult between
marketing and other functions.
 Process departmentation
• In this method activities are grouped on the
basis of production process. It is useful in
manufacturing industries like textile mill, oil
industries etc.
 Board Of Directors.

Managing Director.

Finance Manager. General Manager. Sales Manager.

Processing. Spinning. Weaving. Dyeing. Bleaching. Printing.

 Merits of process departmentation

• It gives economic advantage.

• It leads to effective utilisation of
specialised equipment skill.
• The responsibility of each of the processes
can be easily located.
• It is the simplest method and can be
adopted on a large scale.
• It helps reduced cost of production.
 Demerits of process departmentation

• Sometimes it makes the task of

maintaining co-ordination difficult.
• It causes wastage and inefficiency through
duplication of specific equipments of
common use.
• There may be conflict between managers
controlling various processes.
• It is suitable only for specific type of
plans.
Thank You…