Recently updated on April 13th, 2023 at 06:21 pm

Departmentation’ or ‘Departmentalisation’ is the process of grouping the activi­ties of an enterprise into several units for the purpose of administration at all levels.

Koontz and O’Donnell define a department as designating “a distinct area, division, or branch of an enterprise over which a manager has authority for the performance of specified activities”. Most enterprises are involved in producing a product or a service for the benefit of others. The latter aspect requires marketing or distribution so that the persons for whom the product or service is intended will accept it if it satisfies his needs. These activities require money or sufficient capital or finance.

Departmentation means the grouping of similar activities and employees of organisation into various departments for the purpose of facilitating administration is called departmentation. It implies the division of total work of an organisation into individual functions and sub functions. It is the process of division of organisation into different parts known as departments.

The administrative units so created may be designated as departments, divisions, units, branches, sections, etc.

The process of organising consists of dividing and grouping of the works to be done in an enterprise and assigning different duties and responsibilities to different people.

Dividing the work naturally means the identification of individual activities which have to be undertaken for the attainment of the organisational objectives. But once the various activities have been identified, it is necessary to group them together on some logical basis so that a team can be organised.

Departmentation can provide a necessary degree of specialisation of executive activity for efficient performance. It can simplify the tasks of management within a workable span. It also provides a basis on which the top managers can co-ordinate and control the activities of the departmental units.

Departmentation is done through the following process:

  1. Identification of work.
  2. Analysis of details of each work.
  3. Description of the function of the organisation.
  4. Entrusting the functions to a separate person who has specialised in the respective field and providing him with suitable staff.
  5. Fixing the scope of authority and responsibility of the departmental heads.

Need for and Importance of Departmentation:

The basic need for departmentation is to make the size of each departmental unit man­ageable and secure the advantages of specialisation. Grouping of activities and, consequently, of personnel, into departments makes it possible to expand an enterprise to any extent.

Departmentation is necessary on account of the following reasons:

  1. Advantages of Specialisation:

Departmentation enables an enterprise to avail of the benefits of specialisation. When every department looks after one major function, the enterprise is developed and efficiency of operations is increased.

  1. Feeling of Autonomy:

Normally departments are created in the enterprise with cer­tain degree of autonomy and freedom. The manager in charge of a department can take inde­pendent decisions within the overall framework of the organisation. The feeling of autonomy provides job satisfaction and motivation which lead to higher efficiency of operations.

  1. Expansion:

One manager can supervise and direct only a few subordinates. Group­ing of activities and personnel into departmentation makes it possible for the enterprise to expand and grow.

  1. Fixation of Responsibility:

Departmentation enables each person to know the spe­cific role he is to play in the total organisation. The responsibility for results can be defined more clearly, precisely and accurately and an individual can be held accountable for the per­formance of his responsibility.

  1. Upliftment of Managerial Skill:

Departmentation helps in the development of managerial skill. Development is possible due to two factors. Firstly, the managers focus their attention on some specific problems which provide them effective on-the-job training. Sec­ondly, managerial need for further training can be identified easily because the managers’ role is prescribed and training can provide them opportunity to work better in their area of spe­cialisation.

  1. Facility in Appraisal:

Appraisal of managerial performance becomes easier when specific tasks are assigned to departmental personnel. Managerial performance can be meas­ured when the areas of activities are specified and the standards of performance are fixed. Departmentation provides help in both these areas.

When a broader function is divided into small segments and a particular segment is assigned to each manager, the area to be appraised is clearly known; and the factors affecting the performance can be pointed out more easily. Similarly, the standards for performance can be fixed easily because the factors influencing the work performance can be known clearly. Thus, performance appraisal becomes more effective.

  1. Administrative Control:

Departmentation is a means of dividing the large and com­plex organisation into small administrative units. Grouping of activities and personnel into manageable units facilitates administrative control. Standards of performance for each and every department can be precisely determined.

6 Main Factors that are Basic to Divide an Organization into Departments

The following factors are basic to divide an organization into departments:

  1. Specialization:

Department should yield the advantages of specialization. Specialization may be functional such as in marketing, we have advertising, sales promotion etc. or byproducts such as cosmetics, condiments etc.

  1. Control:

Departmentation should serve to make control as effective as possible. One activity intended to serve, as a check on another should be under specific executive. Territorial departments (zonal or districts) may be established in such a way that the performance of one can be checked by comparison with the other. A clean break made between two departments will help in fixing responsibility clear and squarely.

  1. Co-Ordination:

Quite different activities may be grouped together under one executive, because they need to be co-coordinated. In case of orphan activities like filing, or other service function, the most-use criterion may be applied. That is such activities may be clubbed together with the function that relies on it the most.

  1. Attention:

An activity that is considered to be basic to the success of an enterprise may be given greater attention than others and may, for this purpose, be placed in separate division.

  1. Local Conditions:

While forming departments, attention must be given to local conditions, at the places concerned, for example, the personalities of individuals who will man the organization, or the pattern of informal relationships among people, or the need to combine activities into full-time jobs.

  1. Economy:

The expenses involved in creating a separate division for an activity or activities should also be considered though this should not become the all- important factor.

There are certain basic methods of dividing the duties and responsibilities within an organisational structure.

They are given below:

  1. Departmentation by functions.
  2. Departmentation by regions (area or location) or territory.
  3. Departmentation by customers.
  4. Departmentation by product or service.
  5. Departmentation by process.
  6. Matrix organisation
  7. Strategic Business Units.

Departmentation by Enterprise Function:

Grouping activities in accordance with the functions of an enterprise-functional departmentation-embodies what enterprises typically do. Since all enterprises undertake the creation of something useful and desired by others, the basic enterprise functions are production (treating utility or adding utility to a good or service), selling (finding customers, patients, clients, students, or members who will agree to accept the good or service at a price or for a cost), and financing (raising and collecting, safe guarding, and expending the funds of the enterprise).

It has been logical to group these activities into such departments as engineering, production, sales or marketing, and finance.

The most commonly followed basis of departmentation is by functions. Under this departmentation, the activities are grouped on the basis of functions which are to be performed. Each department is headed by one responsible person, who is directly responsible to the General Manager.


  1. It is a scientific and time tested method.
  2. It follows the principles of occupational specialisation and division of labour.
  3. It ensures proper performance control.
  4. Due weightage and prestige are given to the departmental managers and they are respected by top management people.
  5. It facilitates co-ordination activity within the department itself and the organisation as a whole.
  6. It is economical, simple and easy to understand.
  7. It helps the utilisation of manpower and other natural resources of the organisation.
  8. It is logical reflection of functions.
  9. It maintains power and prestige of major functions.
  10. It simplifies training.
  11. It furnishes means of tight control at top.


  1. It makes the management control work more difficult.
  2. The department heads consider themselves to be autonomous sections of the organisation. The managers will not look upon the undertaking as a unit.
  3. It increases the work load and responsibility of departmental managers.
  4. It doesn’t offer any scope for training for the overall development of managers.
  5. The departmental managers are experts in handling the problems in their departments alone. They may not be able to understand the problems of other departments.
  6. It reduces coordination between functions.
  7. Responsibility for profits is at the top only.
  8. Slow adaptation to changes in the environment.

Departmentation by Territory or Geography (or) Region (or) Area:

Departmentation based on territory is rather common in enterprises that operate over wide geographic areas. In this case, it may be important that activities in a given area or territory be grouped and assigned to a manager.

Business firms resort to this method when similar operations are undertaken in different geographic areas, as in automobile assembling, chain retailing and wholesaling and oil refining. Many government agencies-Bank and the Postal Service, and so on, adopt this basis of organisation in their efforts to provide similar services simultaneously across the nation.

Territorial departmentation is most often used in sales and in production; it is not used in finance, which is usually concentrated at the headquarters. This method of departmentation may be suitable for a business unit which is wholly dispersed.

The business activities are grouped in area-wise and each area is incharge of a single person. The local persons are appointed as salesmen in each area. It will help the business unit to increase the sales. The reason is that the local person is familiar with the local language, the culture and preferences of the customers.


  1. It makes possible an effective span of control.
  2. It reduces the cost of operation and gains saving in time.
  3. The sales may be increased with the help of intimate knowledge about the tastes and preferences of the customers in the local market.
  4. Regional managers could win the confidence of customers and remove the competitors from the market.
  5. Accounts are prepared area-wise. So, the profitability of each area is known to the management.
  6. It provides opportunities to managers to improve their skill in various fields.
  7. This type of departmentation is more suitable for a large scale business unit.
  8. Control process is very easy to manage.
  9. It places responsibility at a lower level.
  10. It places emphasis on local markets and problems.
  11. It improves coordination in a region.
  12. It takes advantage of economies of local operations.
  13. It has better face-to-face communication with local interests.
  14. It furnishes measurable training ground for general managers.


  1. It increases the number of personnel with general manager abilities and involves high cost of operation.
  2. The control of head office is less effective one.
  3. It may also involve duplication of work.
  4. A small business concern cannot manage the high cost of operation.
  5. It tends to make maintenance of economical central services difficult and may require services such as personnel or purchasing at the regional level.
  6. It increases problem of top management control.

Customer Departmentation:

Grouping activities so that they reflect a primary interest in customers is common in a variety of enterprises.

This type of departmentation is preferred when the various needs of customers are different in nature. For example, a bank or a financial institution may divide its loan section into number of heads and assign them to various departments, such as loans to businessmen, farmers, professionals and so on. Similarly, the sales department of a business concern could be divided into industrial goods and consumer goods. The consumable goods could again be sub-divided into perishable and non-perishable in nature.


  1. It fulfills the expectations and needs of customers.
  2. It encourages concentration on customer needs.
  3. It gives customers feeling that they have an understanding supplier.
  4. It develops expertness in customer area.
  5. It develops specialisation among the organisation staff.
  6. The out of fashion products can be dispensed with through the departmentation by customers. The reason is that the business unit has intimate knowledge of the customer’s tastes and preferences.
  7. Each section of the customer is able to get better service from the company and helps the company to win the goodwill, of its customers.


  1. There may be duplication of activities.
  2. The achievement of co-ordination is very difficult.
  3. There is a wastage of available resources and facilities.
  4. The production activities cannot be organized under this methods of departmentation. If it is so, the cost of operation will be high.
  5. It may be difficult to coordinate operations between competing customer demands.
  6. It requires managers and staff expert in customers problems.
  7. Customer groups may not always be clearly defined (for example, large corporate firms vs. other corporate businesses).

Departmentation by Product:

Grouping activities on the basis of products or product lines has been growing in importance in multi-line, large-scale enterprises.

This structure permits top management to delegate to a division executive extensive authority over the manufacturing, sales, service and engineering functions that relate to a given product or product line and fix a target of profit responsibility for each of these managers.

This type of departmentation is made by the large-scale business unit. A single business unit may manufacture and sell different types of products. Then, each type of product or services is allocated to a separate department. Functionalised units for each product are created within the general structure of the organisation. Manufacturing, sales, finance and personnel functions are arranged separately for each type of product.

Each department is responsible for manufacturing a product and selling it to customers. Grouping of all activities are planned in advance within each product section. The co-ordination function is performed by the top management.


  1. Product departmentation helps in the maximum utilisation of personal efficiency of workers in the area of manufacturing and marketing of product.
  2. It places attention and effort on product line.
  3. There is a possibility of gaining economy in manufacturing and marketing of products on account of large scale operation.
  4. Better services may be provided to the customer.
  5. The profitability of each product is known to the management. So, it is easy to fix the responsibility on the departmental heads.
  6. Proper attention may be devoted to the manufacture of a product.
  7. All the functions pertaining to the manufacture of a particular product are performed by managers. Then, there is the possibility of an effective co-ordination and control.
  8. A new line of product can be introduced without any difficulty.
  9. It facilitates use of specialized capital, facilities, skills, and knowledge.
  10. It permits growth and diversity of products and services.
  11. It improves coordination of functional activities.
  12. It places responsibility for profits at the division level.
  13. It furnishes measurable training ground for general managers.


  1. There is a danger of duplication of work.
  2. It increases the number of personnel with general manager abilities which in turn increases the cost of operation.
  3. It requires additional cost for maintaining a sales force for each type of product.
  4. In proportion to the increase in the number of employees, the problem of control at the executive levels become more difficult.
  5. Machines and equipments in each product department may not be used fully
  6. It tends to make maintenance of economical central services difficult.
  7. It increases problem of top management control.

Departmentation by Process:

This type of Departmentation is followed when the production activities are carried on in many places. For example, a textile mill has many departments such as Ginning, Spinning, Weaving, Dyeing and Printing, Packing and Sales. Each section will be in charge of separate specialised persons.


  1. The costlier machines can be used effectively.
  2. There is no interruption of the departments or process in other production processes. The requirements and renewals of any process cannot affect the production of other processes.
  3. There may be economy in operation.
  4. There is no duplication of activities.
  5. The principle of specialisation and division of labour is followed under this method of departmentation.
  6. This departmentation helps the top management to have effective performance control.
  7. This type of departmentation is more suitable to any business unit which manufactures a product passing through a number of processes.


  1. Separate rooms for operation and other facilities should be given to all the process. This results in heavy cost of operation.
  2. More specialties are essential to each process.
  3. It does not give good training to staff members and there is a lack to overall development of the managerial talents.

Matrix Organisation:

Another kind of departmentation is matrix or grid organisation or project or product management. However, pure project management need not imply a grid or matrix. The essence of matrix organisation normally is the combining of functional and project or product patterns of departmentation in the same organisation structure.

And an overlay of project managers is responsible for the end product. This kind of organisation occurs frequently in construction (for example, building a bridge), in aerospace (for example, designing and launching a weather satellite), in marketing (for example, an advertising campaign for a major new product), in the installation of an electronic data processing system, or in management consulting firms in which professional experts work together on a project.


  1. It is oriented toward end results
  2. Professional identification is maintained
  3. It pinpoints product-profit responsibility


  1. Conflict in organisation authority exists
  2. Possibility of disunity of command exists
  3. It requires manager effective in human relations

Strategic Business Units (SBUs):

Companies have been using an organisational device generally referred to as a Strategic Business Unit (SBU). SBUs are distinct little businesses set up as units in a larger company to ensure that a certain product or product line is promoted and handled as though it were an independent business.

This special organisation unit was introduced to ensure that each product offered by the company would receive the same attention as if it were developed, produced, and marketed by an independent company.

An SBU, must have 1. have its own mission, distinct from the mission of other SBUs, 2. have definable groups of competitors, 3. prepare its own integrative plans, fairly distinct from those of other SBUs, 4. manage its resources in key areas, and 5. have a proper size neither too large nor too small.

For each SBU, a manager (usually a “business manager”) is appointed with responsibility for guiding and promoting the product from the research laboratory through product engineering, market research, production, packaging, and marketing and with bottom-line responsibility for its profitability. Thus, an SBU is given its own mission and goals.

Obviously, the major benefit of utilizing an SBU organisation is to provide assurance that a product will not get “lost” among other products (usually those with larger sales and profits) in a large company. It preserves the attention and energies of a manger and staff whose job is to guide and promote a product or product line. It is thus an organisational technique for preserving the entrepreneurial attention and drive the characteristic of the small company. In fact, it is an excellent means of promoting entrepreneurship.

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