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.
Share Holder Board of Directors General Manager Prod.FinancePurchaseMarketingPersonnelResearch
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 companys 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.