Definition, Meaning and Bases of Departmentation such as Functional, Territorial, Process, Product, Customer, Time, their merits & demerits are explained in this. The question arises: On what basis should we carve up the members of the organization Here are six common bases for departmentation. Departmentation: Meaning and Bases | Organisation Process. Article shared by: After reading this article you will learn about Departmentation: 1. Meaning of.

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After reading this article you will learn about: Meaning of Departmentation 2. Importance of Departmentation 3. Departmentation is the foundation of organisation structure, that is, organisation structure depends upon departmentation.

Departmentation means division of work into smaller units and their re-grouping into bigger units departments on the basis of similarity of features. As the organisation grows in size, the work is divided into units and sub-units. Departments are created and activities of similar nature are grouped in one unit. Each department is headed by a person known as departmental manager. Departmentation, thus, helps in expanding an organisation and also promotes efficiency by dividing the work on the basis of specialisation of activities and appointing people in various departments on the basis of their specialised knowledge.

Division of work into units and sub-units creates departments.

6 Different Basis of Departmentation in an Organisation

Supervisors and managers are appointed to manage these departments. People are placed in different departments according to their specialised skills. The departmental heads ensure efficient functioning of their departments within the broad principles of organisation scalar chain, unity of command, unity of direction etc.

Thus, organisation structure is facilitated through departmentation. If there are no departments, it will be difficult to keep track of who is doing what and who is accountable to whom. Departmentation creates departments, assigns tasks to people, fixes their responsibility and accountability to their departmental heads, creates a span of management so that work can be easily supervised.

This network of authority- responsibility relationships is the basis of designing a sound organisation structure. In large organisations, one person cannot look after all the managerial functions planning, organising etc.

He cannot adapt the organisation to its internal and external environment. Such an organisation would become an inflexible organisation. Creating departments and departmental heads makes an organisation flexible and adaptive to environment.

Notes on Departmentation: Meaning, Importance and Basis | Organisation

Division of work into departments leads to specialisation as people of one department perform activities related to that department only. They focus on a narrow set of activities and repeatedly performing the same task increases their ability departmentztion perform more speedily and efficiently.

Specialisation promotes efficiency, lowers the cost of production and makes the products competitive. If there are no departments, organisational resources; physical, financial and human, will be commonly shared by different work units.

Departmentation helps in sharing resources according to departmental departmebtation.


Priorities are set and resources are departmentwtion according to the need, importance and urgency regarding their use by different departments. Creating departments focuses on departmental activities and facilitates co-ordination. Managers cannot control organisational activities if they have to be collectively supervised.

Departmentation facilitates control by departmental manager over the activities of his department only. Activities are divided into smaller segments, standards of performance can be framed, factors affecting performance can be identified and control can be more objective in nature. Flow based work from one level to another and for every department, i. In the absence of departmentation, managers can supervise a limited number of activities, depending upon their skills and abilities.


Departmentation enables them to expand their area of operation into new product lines and geographical divisions. Departmentation provides scope for organisational growth along the same product lines and expansion adding new product lines.

Since similar activities are grouped in one department headed by departmental managers, it becomes easy for top managers to fix responsibility of respective managers for achieving the desired results.

If planned performance is not achieved, the department responsible becomes answerable. When responsibility is clear, authority can also be delegated to managers. Clear identification of responsibility and authority increases efficiency of the departmental activities. Departmentation enables departmental heads to be creative in making decisions with respect to their departmental activities. There are opportunities to improve performance in their area of specialisation. This develops their potential to be promoted to higher managerial positions in the organisation.

It also facilitates recruitment and selection of top managers from within the organisation rather than depending on outside sources. The form of organisation structure depends upon the basis of departmentation.

Creating departments and sub-dividing the work of departments into smaller units creates organisation structure. With growing size of organisations, departments are created for activities of similar nature.

Functional organisation creates departments along activities or functions of the undertaking functions do not refer to managerial functions of planning, organisingstaffing, directing and controlling. It is grouping of activities on the basis of similarities of functions. The nature of activities performed by different organisations is different. For example, activities carried by a manufacturing organisation are production, finance, personnel and sales. For a trader, the major activities are buying and selling, a bank performs borrowing and lending functions.

It is the simplest, logical and most widely accepted form of creating departments. It is suitable for organisations where limited number of products are produced. The major functional departments further have derivative departments. Production department, for example, has sub-departments to manage purchase, production planning and control, manufacturing etc.

Finance department creates departments to look into capital budgeting fixed assets and current assets, cash management and budgets.

Personnel department has sub-departments to take care of appointments, training, placement and promotion of employees. These sub-departments can be further sub-divided if needed. Advertising department sub-department of marketing departmentfor example, can further have sub-departments like advertising in Newspapers, Radio, TV etc.

Production, marketing, finance and personnel are widely accepted and recognised functions of a manufacturing organisation and, therefore, it is a simple basis of departmentation. Since workers in one functional area focus on that area only, they acquire expertise and specialised skills in performing their duties. This offers the benefits of specialisation; efficiency and speed.

People working in one department are closely knitted and work collectively towards achievement of departmental goals. The departmental manager can co-ordinate various derivative activities.

The departmental manager is accountable for functions performed by his department. He ensures that activities are performed strictly according to rules and procedures laid down for the department.

He can, thus, exercise control over his departmental activities. If workers are not able to carry out the activities efficiently, managers can train them to do so. It is easy for managers to supervise the departmental activities as they have to supervise a narrow set of functional skills. Organisations which do not frequently change their work units and work force are suitable for creating departments on the basis of functional activities. This basis of departmentation is suitable for small sized organisations which produce a limited line of products.


Even for large organisations, it is suitable only for top levels. Thereafter, some other basis of departmentation has to be used. Marketing department, for instance, can be further branched out on the basis of territorial or geographical departmentation. The employees become so focused on departmental goals that they lose sight of the overall organisational goals.

Since decisions are made by departmental heads for their respective departments, it may delay decision-making for the organisation as a whole. Water-tight compartments are sometimes created amongst departments as people show loyalty towards their departmental managers. Top manager finds it difficult to co-ordinate various functional activities. Top managers find it difficult to hold accountability of any one department for failure of the product in the market.

For example, if the product does not earn profits, top managers cannot say with assertion whether the problem lies with production department or sales department. As this is a suitable form of departmentation for stable organisations, organisations operating in the dynamic environment do not accept functional activities as the basis of departmentation.

They use other basis of departmentation also to remain competitive in the market; either customer or product or territorial departmentation depending upon where and how they want to reach, grow and expand their business.

As organisations grow complex in terms of size and operations, they add more products to their line of products and departmentqtion into new geographical areas for marketing the existing products. Functional departmentation is not suitable in such cases. Divisional structures are created on the basis of smaller divisions where each division has its own functional activities production, finance, personnel and marketing.

This form of departmentation is suitable for companies that produce multiple products. Product departmentation is grouping of jobs and resources around the products or product lines that a company sells. departmntation

With increase in operations of a company, it adds more products to its line of products which require various functional activities production, marketing etc. Product departmentation is suitable for product diversification where marketing characteristics of each product are different from others. An organisation selling stationery, for example, also starts selling cosmetics and pharmaceuticals. While marketing strategies for cosmetics need hases be intensive, it is not so in case of stationery or pharmaceuticals.

Similarly, funds required for each product line are different. The focus is on the product line and all functional activities associated with the product line. Departments are created on the basis of products and product manager has the authority to carry out functional activities for his department.

Each product manager is in charge of his product line though general managers of various functional areas provide them the necessary support.

Departmentation (Grouping)

It helps in coordinating the activities of different products. Product departmentation, separtmentation with various functional areas appear on the organisation chart as follows: There could be further extension of this basis of departmentation. For instance, if product C is a car, the department can be branched out for commercial car, luxury car, special utility vehicle etc.

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