Types of Departmentation

Types of Departmentation

There are several bases of Departmentation. The more commonly used bases are— function, product, territory, process, customer, time etc.

These are explained below:

(A) Departmentation by Functions

The enterprise may be divided into departments on the basis of functions like production, purchasing, sales, financing, personnel etc. This is the most popular

basis of departmentation. If necessary, a major function may be divided into sub-functions. For example, the activities in the production department may be classified into quality control, processing of materials, and repairs and maintenance.

Advantages

The advantages of functional departmentation include the following:

·           It is the most logical and natural form of departmentation.

·           It ensures the performance of all activities necessary for achieving the organisational objectives.

·           It provides occupational specialisation which makes optimum utilisation of manpower.

·           It facilitates delegation of authority.

·           It enables the top managers to exercise effective control over a limited number of functions.

·           It eliminates duplication of activities.

·           It simplifies training because the managers are experts only in a narrow range of skills.

Disadvantages:

There are some problems associated with functional departmentation. These are mentioned below:

·           There may be conflicts between departments.

·           The scope for management development is limited. Functional managers do not get training for top management positions. The responsibility for results cannot be fixed on any one functional head.

·           There is too much emphasis on specialization.

·           There may be difficulties in coordinating the activities of different departments.

·           There may be inflexibility and complexity of operations.

(B) Departmentation by Products

In product departmentation, every major product is organized as a separate department. Each department looks after the production, sales and financing of one product. Product departmentation is useful when the expansion, diversification, manufacturing and marketing characteristics of each product are primarily significant.

It is generally used when the production line is complex and diverse requiring specialized knowledge­ and huge capital is required for plant, equipment and other facilities such as in automobile­ and electronic industries.

In fact, many large companies are diversifying in different fields and they prefer product departmentation. For example, a big company with a diversified product line may have three product divisions, one each for plastics, chemicals, and metals. Each division may be sub-divided into production, sales, financing, and personnel activities.

Advantages:

Product departmentation provides several advantages which may be stated as follows:

1. Product departmentation focuses individual attention to each product line which facilitates­ the expansion and diversification of the products.

2. It ensures full use of specialized production facilities. Personal skill and specialized knowledge of the production managers can be fully utilized.

3. The production managers can be held accountable for the profitability of each product­. Each product division is semi-autonomous and contains different functions. So, product departmentation provides an excellent training facility for the top managers.

4. The performance of each product division and its contribution to total results can be easily evaluated.

5. It is more flexible and adaptable to change.

Disadvantages

Product departmentation presents some problems as follows:

1. It creates the problem of effective control over the product divisions by the top managers.

2. Each production manager asserts his autonomy disregarding the interests of the organisation.

3. The advantages of centralization of certain activities like financing, and accounting are not available.

4. There is duplication of physical facilities and functions. Each product division maintains­ its own specialized personnel due to which operating costs may be high.

5. There may be under-utilization of plant capacity when the demand for a particular product is not adequate.

(C) Departmentation by Territory

Territorial or geographical departmentation is specially­ useful to large -scale enterprises whose activities are widely dispersed. Banks, insurance­ companies, transport companies, distribution agencies etc, are some examples of such enterprises, where all the activities of a given area of operations are grouped into zones, branches, divisions etc.

It is obviously not possible for one functional manager to manage efficiently such widely spread activities. This makes it necessary to appoint regional managers­ for different regions.

Advantages

Territorial departmentation offers certain facilities in operation. These are pointed out below:

·           Every regional manager can specialize himself in the peculiar problems of his region.

·           It facilitates the expansion of business to various regions.

·           It helps in achieving the benefits of local operations. The local managers are more familiar with the local customs, preferences, styles, fashion, etc. The enterprise can gain inti­mate knowledge of the conditions in the local markets.

·           It results in savings in freight, rents, and labor costs. It also saves time.

·           There is better co-ordination of activities in a locality through setting up regional divisions.

·           It provides adequate autonomy to each regional manager and opportunity to train him as he looks after the entire operation of a unit.

Disadvantages

Territorial departmentation have the following problems:

·           There is the problem of communication.

·           It requires more managers with general managerial abilities. Such managers may not be always available.

·           There may be conflict between the regional managers.

·           Co-ordination and control of different branches from the head office become less effective.

·           Owing to duplication of physical facilities, costs of operation are usually high.

·           There is multiplication of personnel, accounting and other services at the regional level.

(D) Departmentation by Customers

In such method of departmentation, the activities are grouped according to the type of customers. For example, a large cloth store may be divided into wholesale, retail, and export divisions. This type of departmentation is useful for the enterprises which sell a product or service to a number of clearly defined customer groups. For instance, a large readymade garment store may have a separate department each for men, women, and children. A bank may have separate loan departments for large-scale and small- scale businessmen.

The organisation chart of customer-oriented departmentation may appear as follows:

Advantages

The important advantages of customer departmentation are the following:­

·           Special attention can be given to the particular tastes and preferences of each type of customer.

·           Different types of customers can be satisfied, easily through specialized staff. Customers’­ satisfaction enhances the goodwill and sale of the enterprise.

·           The benefits of specialization can be gained.

·           The enterprise may acquire intimate knowledge of the needs of each category of customers.

Disadvantages:

This method of departmentation may have certain disadvantages, specially when it is followed very rigidly. These are as follows:

·           Co-ordination between sales and other functions becomes difficult because this method can be followed only in marketing division.

·           There may be under-utilization of facilities and manpower in some departments, particularly during the period of low demand.

·           It may lead to duplication of activities and heavy overheads,

·           The managers of customer departments may put pressures for special benefits and facilities.

(E) Departmentation by Process or Equipment

In such type or departmentation the activities are grouped on the basis of production processes involved or equipment used. This is generally used in manufacturing and distribution enterprises and at lower levels of organisation­. For instance, a textile mill may be organised into ginning, spinning, weaving, dyeing and finishing departments. Similarly, a printing press may have composing, proof reading, printing and binding departments. Such departmentation may also be employed in engineering­ and oil industries.

Advantages:

The basic object of such departmentation is to achieve efficiency and economy of operations. The processes are set in such a way that a series of operations is feasible making operations economic. Efficiency can be achieved if departments are created for each process as each one has its peculiarities.

It provides the advantages of specialization required at each level of the total processes. The maintenance of plant can be done in better way and manpower can be utilized effectively.

Disadvantages

In such departmentation, there may be difficulty in coordinating the different process-departments, because the work of each process depends fully on the prece­ ding process. So, there are chances of conflicts among the managers looking after the different­ processes. It cannot be used where manufacturing activity does not involve distinct processes­.

(F) Departmentation by Time and Numbers

Under this method of departmentation the activities are grouped on the basis of the time of their performance. For instance, a factory operating 24 hours may have three departments for three shifts—one for the morning, the second for the day, and the third for the night.

In the case of departmentation by numbers, the activities are grouped on the basis of their performance by a certain number of persons. For instance, in the army, the soldiers are grouped into squads, companies, battalions, regiments and brigades on the basis of the number prescribed­ for each unit.

Such type of departmentation is useful where the work is repetitive, manpower is an important factor, group efforts are more significant than individual efforts, and group performance can be measured. It is used at the lowest level of organisation.