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Departmentalization : Meaning and Method - Organizing


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Departmentalization : Meaning and Method - Organizing

Departmentalization : Meaning and Method

Departmentalization Meaning:

- Divide an organization or its work into departments

Departmentalization is the process by which jobs are grouped and allocated in different departments to different groups according to the need of the organization. In this process jobs are grouped according to some logical arrangement on the basis of functions, products or geographical requirements.

According to S. A. Shrlekar, “Departmentalization is the process of analyzing, dividing and arranging work or activities into a manageable portion for individuals, section and departments.” The importance of departmentalization can be explained from the following points:

  1. It provides the advantages of specialization of work.
  2. It helps in fixing the responsibility and consequently (as a result) accountability for the results.
  3. It facilitates the development of managers.
  4. Managerial performance of the managers can be appraised more objectively through departmentalization.
  5. It gives the feeling of autonomy which provides the satisfaction and motivation leading to higher efficiency of operations.
  6. It facilitates (make easy) administrative and financial control.

Method of Departmentalization:

Departmentalization is required in organizations employing a large number of employees. There are several bases for departmentalization each of which is suitable for particular corporate -size, strategies and purposes. They are as follows:

1. Departmentalization by Function: A function is a group of people, working together, who posses similar skills or use the same kind of knowledge, tools, or techniques, to perform their jobs. Employees who perform similar kinds of work are grouped together into one function unit is called department. In the functional organization jobs are specialized and grouped according to the business functions like production, marketing, finance, personnel, accounting etc.


  • It encourages professional identity and clarifies career paths among managers. Since, managers work in special division, they develop specific expertise by specializing in the activities of the departments.
  • In this structure, there is possibility of direct supervision. Since managers are experts in functional areas, employees approach them with common problems and issues.
  • Under the structure, it is easy to develop a pool qualified managers to take future responsibility.
  • The chief executive will remain familiar ad in direct and frequent contact with functional managers to deal with different issues and problems.


  • Since all employees focus on a single unit’s goal, they may be less concerned about the organizational goals. In other words, different units work less on common goals that is more important than their conflicting departmental or individual goals.
  • Divisional managers are more concerned with their routine activities rate rather than total issues of the firm.

2. Departmentalization by Product: These types of departmentalization are eminently (to a notable degree: very) suited to large enterprise manufacturing a variety of products. Under this method products or product lines from the basis of departmentalization. All functions relating to one product or product line are brought together under one department or division. Each division looks after the production, marketing, finance and personnel functions of one product. These types of departmentalization are suitable for organizations having diversified and large product line or service. It is also suitable when the product lines differ greatly with respect to marketing expertise, production technology, and customers.


  • It would be easy to group all jobs for a product that facilitates coordination and integration within a product department.
  • Managers of the concerned product department can make prompt decisions.
  • Divisional performance can be controlled and evaluated without much difficulty.
  • Healthy competition among the division of resources can enhance effectiveness. Disadvantages:
  • People working in one department care for only one product and regardless of problems of the rest of the organization.
  • One department specialist concentrates only on in his or her department, but not in other departments even if s/he knows the problems of other departments.
  • When an organization employs different specialists in different departments, the operation costs will rise.
  • Because of too many divisions, such a structure may create complexity.

3. Departmentalization by Customer/Client: Under this structure, work activities are organized around specific customers. The main focus of this form of departmentalization is to serve different types of clients or customers effectively. Therefore, emphasis is give to customers’ types and needs. E.g. a commercial bank may divide its loan department into a number of sections each specializing in loans to traders, industrialists, agriculturist, etc.


  • Mainly concentrates on business areas such as product or services orclients.
  • This structure is a building block structure because it accommodates growth relatively easily. Related products or clients can be added without additional need for learning.
  • Easy to measure the performance of staff on the basis of product or client.
  • Ithelpsmanagerstoconcentrateondifferentstrategiestoexpanditscustomers.
  • Since all functions relating to specific client or customer should be made by a single department it encourages general management development for managing concerned client.


  • The main problem with this structure is that it duplicates and under uses resources. Under this type of structure the divisional specialists relating to sales, manufacturing and distributing are spread throughout the various units.
  • It tends to reduce cooperation across groups. Because specialists are organized just to maximize their benefits, there will be problem in acquiring resources among different managers in a multidivisional structure.
  • With this structure, there will be too many divisions and therefore, complexity will rise. With the rise in the number of departments chances of cooperation will below.

4. Departmentalization by Territory: Departmentalization can also be done on the basis of territory or geographic locations. It is useful to a large scale enterprise whose activities are widely geographically dispersed. Banks, insurance companies, etc. generally adopt this type of Departmentalization. Under this type of departmentalization, activities are grouped into regions, zones, branches etc.


  • This structure facilitates to serve unique customers and is locally responsive.
  • In-depth knowledge o specific region/country.
  • Increases accountability by region.
  • Facilitates regional integration, unification and coordination of activities. Disadvantages:
  • Often difficult for cross-regional coordination.
  • Duplication of resources and functions across region.
  • Since operation is located in different parts of the world, operation cost will be high for staffing.

5. Departmentation by process: This method of Departmentation is implemented in such organization, were production activities need some distinct processes. Specially, this method is used in large scale manufacturing concerns such as textiles, cements, chemicals, medicines, etc.


  • Authorities, duties and responsibilities are clearly defined.
  • Efficiency and effectiveness can be achieved in resource use.
  • Able to adapt in a dynamic environment. Disadvantages:
  • Mostly suitable for manufacturing organizations.
  • Duplication of effort leads to inefficiency and high cost
  • There is lack of coordination among processes.

6. Departmentation by Time: Departmentation can also be done on the basis of time. For the organization having the nature of providing 24 hours of services, it becomes suitable to establish different departments on the basis of time. Generally, hospitals, hotels, telecommunication, electricity and other public utility companies which work around the clock are made departments on the basis of time, such as day, evening and nightshift.


  • Optimum utilization of available resources becomespossible.
  • Those employees who cannot work in day time can get the opportunity to work in evening or nigh time and vice-versa.
  • Because of its flexibility, it can respond easily to the environment. Disadvantages:
  • Large volumes of activities are needed.
  • Complexity may arise in determining the work schedule for workers, because most of the workers prefer to work in day time rather than other shifts. This also leads to de-motivation towards work.
  • Since payment for overtime services is needed, cost of production increases.
  • Lack of coordination among departments.

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