Types of Departmentation

Principle & Practice of Management

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Types of Departmentation

Departmentation Types

Departmentation Types can be made on the basis of:
1. Functions, e.g., sales, production, personnel, planning, transport, etc.
2. Products, e.g., air-conditioners, accounting machines, electronic calculators, etc.
3. Territory, region, or geographical area, e.g., Northern Railway, Western Railway, N.E. Railway, etc.
4. Customer, e.g., wholesaler, retailer, government.
5. Process.
6. Appropriate combination of any of these types.

Functionwise Departmentation Types

The functional structure is the most common in Function-wise Departmentation types. In most companies, unless they are giant corporations, this is the form of the organisation. The departmental heads will report to the Chief Executive. Under each of these five managers, there will be subordinate managers and under them, the subordinate staff.
The advantages of this type of structure are as follows:
1. It is a logical reflection of functions.
2. It follows the principle of specialisation.
3. Maintains power and prestige of major functions.
4. Inter-departmental co-ordination is facilitated.
5. The structure is simple, logical and easy to understand.
6. Provides a good means of control at the top.
There are also some disadvantages of Departmentation Types:
1. Responsibility for profits tends to be at the top.
2. There may be chances of heavy centralization in decision-making.
3. Where geographical centralization is desirable or required, this form becomes unsuitable.
4. This is not very suitable where product lines have to be emphasized.
5. There is a lower potential for manager development.

Product-wise Departmentation Types

Product-wise departmentation types is resorted to where specialization is required in respect of specific products of the company in Departmentation Types. For example, a company may deal with eight or nine product lines, e.g., chemicals, drugs, foodstuffs, cosmetics, etc. and each under a separate division, e.g., Chemicals Division, Foodstuffs Division, etc.
The advantages of this type of structure are:
1. Places greater effort on individual product line.
2. Better customer service arising from greater product knowledge.
3. Simplifies departmentation of profitability of each product line. Responsibility for profits is at the Division level.
4. Improves co-ordination of functional activities.
5. New department may be added without difficulty. Permits growth and diversity of products and services.
6. Detailed information on markets for specific products will be generated.
7. Extremely suitable where product lines are complex or vary greatly.
8. Furnishes measurable training ground for Managers.
Some of the disadvantages inherent in such departmentation are:
1. A customer has to deal with different salesmen or managers for different products of the same company.
2. Extra costs of maintaining separate sales force for each product.
3. Duplication of costs on travel, etc.
4. Tends to make maintenance of economical central services difficult.
5. Results in increased problems of the top management control.

Territorial or Geographical Departmentation Types

Such departmentation Types is especially attractive to large-scale enterprise or others having activities physically or geographically spread out. Such departmentation is proper when its purpose is to encourage local participation in decision-making and to take advantage of certain economies of localized operation.
The advantages of such departmentation types are:
1. Regional expertise is generated and managers can tackle customers or competition better. Places responsibility at lower levels.
2. Proximity will reduce costs of operation and administration.
3. Places emphasis on local markets and problems. Local conditions might warrant different types of selling. This is possible only in territorial departmentation.
4. Improves co-ordination at the regional level.
5. Better face to face communication with local interests in mind.
6. Better manager development.
Some disadvantages are listed as follows:
1. Involves higher costs of co-ordination and control from headquarters.
2. Results in more managerial levels which increases overhead costs.
3. Unsuitable for departments like Finance, where no gains are possible by specialization on local factors.
4. Increases problems of the top management control.

Departmentation by Customers

Departmentation by customers places greater emphasis on the customers and distinguishes one type from the other. For example, the division could be industrial buyers, whole-sellers, government, and public undertakings, agriculturists, etc.
Some advantages of this type of structure are:
1. Greater specialised customer service.
2. Where marketing channels are considerably different for various types of customers, this type of structure is very useful.
Some disadvantages of this type are:
1. May not be enough work for certain types of customers. Hence, under employment of facilities and manpower specialised in terms of customer groups.
2. Problems of co-ordination might pose difficulties.
3. Unequal development of customer groups.

Departmentation by Process or Equipment

This structure is used where the machines used need special skills for operating them or have technical facilities which make concentrated location desirable. This type of structure is mainly motivated by cost and economic considerations. For example, a factory might have two processes—electrolytic and the other chemical process.
Some writers use the word ‘Divisionalisation’ instead of ‘Departmentation’ and distinguish the two words as follows: A company has several departments, say Sales, Production, Planning, etc. When it breaks up into Divisions, each Division may have Chemicals Division and Drugs Division which are both autonomous.
Some centralisation is necessary because production facilities are labour bound.
Some advantages of divisionalisation are:
1. Greatly reduces the burden of the top management.
2. Helps in fixing accountability.
3. Brings decision-making close to the scene of action.
4. Divisional Manager becomes more of a generalist than a specialist in one function.
5. More effective performance can lead to greater profitability.
Some of the disadvantages are:
1. Division may become too independent that it may begin to work against the company as a whole.
2. Division may maximise short-run gains at the expense of corporate long-run goals.

Departmentation Types