What is Departmentation? Types, Objectives, Dangers, Methods

What is Departmentation?

Departmentation is the process of grouping various activities into separate units of departments. A department is a distinct section of the business establishment concerned with a particular group of business activities of like nature. The actual number of departments in which a business house can be divided depends upon the size of establishment and its nature. A big business enterprise will, usually, have more departments as compared to a small one. In the words of Allen, “Departmentation is a means of dividing a large and monolithic functional organisation into smaller, flexible, administrative units.”

The various departments in which an organisation can be divided are the production department, marketing department, human resources department, finance department, research and development, etc. The responsibility of the departmental heads is to delegate jobs and responsibilities among the employees who report to them and are accountable for the performance of their departments.

The process of departmentalisation is a formal procedure of organisational structure.

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Objectives of Departmentation

The main objectives of the departmentation or departmentalisation are as follows:

• Categorise and group the jobs according to the specialisation
• Simplify the procedures and operations within the organisation
• Effectively monitor and control the performance of every department
• Increase the productivity and growth of the organisation

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Types of Departmentation

Departmentation is the act of distributing the tasks, activities and people of an organisation into different groups termed as departments. The people are put into groups according to the functions and tasks they would be working on in the department.

The following are some types of departmentation:

• Functional departmentation
• Product departmentation
• Location departmentation
• Customer departmentation
• Process departmentation

Functional departmentation

The activities, tasks and people of the organisation are categorised into departments based on the different functions and activities carried out within a specific department. The departments get categorised into manufacturing departments, human resources departments, purchase departments, sales, and marketing departments, etc.

This process is beneficial in increasing the specialisation and efficiency of respective departments. It also helps the top management to efficiently control different departments. Figure 1 depicts functional departmentation:

Figure 1 shows that on the basis of the functional departmentation, an organisation can be grouped in the production department, finance department, marketing department and human resource department.

Product departmentation

Departments are made and the people are divided into departments based on the products that are produced by the organisation. For example, an automobile manufacturing unit may manufacture various products such as bike, car, two-wheelers etc. This helps managers to exercise control on various product lines in a single organisation. Figure 2 depicts product departmentation:

Figure 2 shows that on the basis of the product departmentation, an automobile organisation can be grouped in a two-wheeler department, three-wheeler department, four-wheeler department and heavy motors department.

Location departmentation

The people in the organisation are grouped according to their area, location and time zone of the territory. With increasing globalisation, the customers of an organisation are geographically spread far and wide and they need to be serviced in their respective locations. Hence, the employees are grouped into departments according to their geographic locations to cater any local needs of these customers. Figure 3 depicts location departmentation:

Figure 3 shows that on the basis of location or geographic departmentation, an organisation can be grouped in north zone department, south zone department, east zone department and west zone department.

Customer departmentation

The tasks, activities and people of an organisation are grouped according to the need and preferences of customers. For instance, a bank may have separate loan departments for the education loan, home loan, car loans, etc.

Customer departmentation is useful for organisations selling varied products or services to clearly-defined customer groups. It helps in enhanced customer experience and provides a competitive edge in the market. Figure 4 depicts customer departmentation:

Figure 4 shows that on the basis of the customer departmentation, an organisation can be grouped in various departments to handle foreign customers, domestic customers, wholesale customers and retail customers.

Process departmentation

The process departmentation is used to group activities of an organisation on the basis of the production processes involved or equipment used. This form of departmentation is used for manufacturing organisations. For example, the activities of a textile mill can be grouped into processes such as ginning, spinning, weaving, dyeing and finishing. Figure 5 depicts process departmentation:

In Figure 5, a textile organisation is shown to have various departments based on the processes, such as the spinning department, weaving department, dyeing department and printing department.

Dangers of Departmentation

Although departmentation is very essential for the efficient running and control of a business, there are a few dangers of departmentation which should be taken care of while assigning and grouping of activities:

• Dividing the business house into various departments makes the co-ordination of various activities very difficult. To achieve individual efficiency, one department may work against the interest of another department thus reducing the overall efficiency and profitability of the business as a whole.
  
  
• Departmentation creates difficulties of communication among the various departments of the organisation and renders planning and control more difficult.
  
  
• Departmentation increases the levels of management which is more expensive and it also increases the gap between the top management and the workers.

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Methods or Basis of Departmentation

• Functional Departmentation
• Product-wise Departmentation
• Territorial or Geographical Departmentation
• Customer-wise Departmentation
• Process or Equipment-wise Departmentation
• Combined or Composite Method of Departmentation

Functional Departmentation

It refers to grouping the activities of an enterprise on the basis of functions such as production, sales, purchase, finance, personnel, etc. The actual number of departments in which an enterprise can be divided depends upon the size of establishment and its nature.

To begin with, we may have three or four main departments. With the growth in the size of the business, more departments and sub-departments may be created.

Advantages of Functional Departmentation

The important advantages of functional departmentation are:

• It is a very simple, natural and logical way of grouping activities.
  
  
• It promotes specialisation and expertise in various functional areas and experts can be employed.
  
  
• It facilitates co-ordination both within the function and at the inter-departmental level.
  
  
• It generates a high degree of centralisation at the level of chief executive.

Disadvantages of Functional Departmentation

Functional departmentation suffers from the following drawbacks:

• It may lead to internal frictions among the various departmental heads as one department may ignore the interest of the other.
  
  
• In functional departmentation, men are experts of their areas of function only. This hinders the development of all-round managers.
  
  
• It leads to excessive centralisation and delay in decision making.
  
  
• It is unsuitable where emphasis lies on products more than the functions.

Product-wise Departmentation

The grouping of activities on the basis of products is very popular with large organisations having distinct type of products. Under this method, all activities related to one type of product are put together under one department under the direction of a production manager. An electronic company, for instance, may have different departments dealing in television sets, radios and transistors, computers, agro-dairy instruments, etc.

Advantages of Product-wise Departmentation

The following are the main advantages of product-wise departmentation:

• It ensures better customer service.
  
  
• Unprofitable product lines can be easily determined.
  
  
• It solves the co-ordination problem of functional departments.
  
  
• It makes control effective.
  
  
• It assists in the development of all-round managerial talent.
  
  
• It is flexible as a new product division can be easily added.

Disadvantages of Product-wise Departmentation

Product-wise departmentation suffers from the following drawbacks:

• It is expensive because of duplication of service functions in various product divisions.
  
  
• It may not be linked by customers and dealers who have to deal with different salesmen of the same enterprise for different products.
  
  
• It may cause difficulty in apportioning general expenses incurred by the enterprise as a whole.

Territorial or Geographical Departmentation

When several activities of an enterprise are geographically dispersed in different locations, territorial or geographical departmentation may be adopted. All activities relating to a particular area or zone may be grouped together under one zonal manager or head.

Advantages

The territorial departmentation offers the following advantages:

• It enables an enterprise to cater to the needs of local people in a satisfactory manner,
  
  
• It enables a concern to make use of locational advantages.
  
  
• It facilitates effective control.
  
  
• It facilitates effective co-ordination of activities within an area,
  
  
• It assists in the development of all-round managerial talent.

Disadvantages

• It is an expensive method of creating departments and overhead costs are also increased.
  
  
• It leads to duplication of activities which creates confusion and involves costs.
  
  
• Co-ordination among various territorial divisions may become difficult.

Customer-wise Departmentation

A business house may be divided into a number of departments on the basis of customers ir serves, viz., large and small customers; industrial and ultimate buyers ; government and other customers etc.

The peculiar advantage of customer-wise departmentation is that it ensures full attention to different types of customers and their different needs, tastes and requirements can be met effectively. However, it may not be possible to group all activities of an enterprise on the basis of customers.

Process or Equipment-wise Departmentation

An enterprise where production is carried through different processes may adopt process wise dartmentation to enable continuous flow of production. Similarly, where work is carried on machines which are common, departments may be created on the basis of equipments, such as milling departments, grinding departments, lathe department etc. The main advantage of this method is that it avoids duplication of equipment in various activities.

Combined or Composite Method of Departmentation

In practice, it may not be advisable to create departments on the basis of any one of the above mentioned methods. An enterprise may have to combine two or more of the methods of departmentation to make best use of all of them. Such a method is known as combined or composite method of departmentation.

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