Everything you need to know about the types of departmentation. The first step in designing an organization structure is to divide whole work into a number of jobs to ensure that no important activity is left out.

The next step is to bring together homogeneous jobs into groups and to decide their relation to each other. This process is known as departmentation, and it involves a decision, by the chief executive, concerning a logical division of work to be done, and leads to the establishment of a number of manageable units.

There can be many methods of departmentation. Every enterprise chooses the appropriate basis or method depending upon its objectives, size, etc.

Some of the types of departmentation are:-


1. Functional Departmentation 2. Product Departmentation 3. Geographical Departmentation 4. Customer Departmentation 5. Process or Equipment Departmentation 6. Project or Matrix Departmentation

7. Team Structures 8. Network Structures 9. Boundaryless Organization 10. Departmentation by Committees 11. Primary Departmentation 12. Intermediate Departmentation.

The different ways in which departmentation may be carried out are:- 1. By Time 2. By Numbers 3. By Marketing Channels.

Additionally, learn about the advantages and disadvantages of the types of departmentation.

Types, Methods and Basis of Departmentation

Types of Departmentation – By Functions, Product, Regions, Customers, Process, Time, Numbers and Marketing Channels

There are certain basic methods of dividing the duties and responsibilities within an organisational structure.


They are given below:

1. Departmentation by functions.

2. Departmentation by product or service.


3. Departmentation by regions (area or location) or territory.

4. Departmentation by customers.

5. Departmentation by process.

6. Departmentation by time.

7. Departmentation by numbers.

8. Departmentation by marketing channels.

A brief discussion of the above classified departmentation is given below:

Type # 1. Departmentation by Functions:

The most commonly followed basis of departmentation is by functions. Under this departmentation, the activities are grouped on the basis of functions which are to be performed.

Each department is headed by one responsible person, who is directly responsible to the General Manager. According to George R. Terry, “the functions or activities are the pivot around which effective executives develop effective and efficient organisation”.



i. It is a scientific and time tested method.

ii. It follows the principles of specialisation and division of labour.

iii. It ensures proper performance control.


iv. It preserves the importance of each of the activities of an organisation.

v. It avoids the interruptions of subsidiary groups in the primary activities.

vi. Due weightage and prestige are given to the departmental managers and they are respected by top management people.

vii. It facilitates co-ordination activity within the department itself and the organisation as a whole.


viii. It is economical, simple and easy to understand.

ix. It helps the utilisation of manpower and other natural resources of the organisation.


i. It makes the management control work more difficult.

ii. The department heads consider themselves to be autonomous sections of the organisation. The managers will not look upon the undertaking as a unit.

iii. It increases the work load and responsibility of departmental managers.


iv. It doesn’t offer any scope for training for the overall development of managers.

v. The departmental managers are experts in handling the problems in their departments alone. They may not be able to understand the problems of other departments.

Type # 2. Departmentation by Product or Service:

This type of departmentation is made by the large-scale business unit. A single business unit may manufacture and sell different types of products. Then, each type of product or service is allocated to a separate department. Functionalised units for each product are created within the general structure of the organisation. Manufacturing, sales, finance and personnel functions are arranged separately for each type of product. Each department is responsible for manufacturing a product and selling it to customers. Grouping of all activities are planned in advance within each product section. The co-ordination function is performed by the top management.


i. Product departmentation helps in the maximum utilisation of personal efficiency of workers in the area of manufacturing and marketing of product.

ii. There is a possibility of gaining economy in manufacturing and marketing of products on account of large scale operation.


iii. Better services may be provided to the customer.

iv. The profitability of each product is known to the management. So, it is easy to fix the responsibility on the departmental heads.

v. Proper attention may be devoted to the manufacture of a product.

vi. All the functions pertaining to the manufacture of a particular product are performed by managers. Then, there is the possibility of an effective co-ordination and control.

vii. A new line of product can be introduced without any difficulty.



i. There is a danger of duplication of work.

ii. It increases the number of personnel which in turn increases the cost of operation.

iii. It requires additional cost for maintaining a sales force for each type of product.

iv. In proportion to the increase in the number of employees, the problem of control at the executive levels becomes more difficult.

v. Machines and equipments in each product department may not be used fully.

Type # 3. Departmentation by Region or Area:

This method of departmentation may be suitable for a business unit which is wholly dispersed. The business activities are grouped in area-wise and each area is in charge of a single person. The local persons are appointed as salesmen in each area. It will help the business unit to increase the sales. The reason is that the local person is familiar with the local language, the culture and preferences of the customers.



i. It makes possible an effective span of control.

ii. It reduces the cost of operation and gains saving in time.

iii. The sales may be increased with the help of intimate knowledge about the tastes and preferences of the customers in the local market.

iv. Regional managers could win the confidence of customers and remove the competitors from the market.

v. Accounts are prepared area-wise. So, the profitability of each area is known to the management.

vi. It provides opportunities to managers to improve their skill in various fields.

vii. This type of departmentation is more suitable for a large scale business unit.

viii. Control process is very easy to manage.


i. It increases the number of personnel and involves high cost of operation.

ii. The control of head office is a less effective one.

iii. It may also involve duplication of work.

iv. A small business concern cannot manage the high cost of operation.

Type # 4. Departmentation by Customers:

This type of departmentation is preferred when the various needs of customers are different in nature. For example, a bank or a financial institution may divide its loan section into number of heads and assign them to various departments, such as – loans to businessmen, farmers, professionals and so on. Similarly, the sales department of a business concern could be divided into industrial goods and consumer goods. The consumable goods could again be sub-divided into perishable and non-perishable in nature.


i. It fulfills the expectations and needs of customers.

ii. It develops specialisation among the organisational staff.

iii. The out of fashion products can be dispensed with through the departmentation by customers. The reason is that the business unit has intimate knowledge of the customer’s tastes and preferences.

iv. Each section of the customer is able to get better service from the company and helps the company to win the goodwill, of its customers.


i. There may be duplication of activities.

ii. The achievement of co-ordination is very difficult.

iii. There is a wastage of available resources and facilities.

iv. The production activities cannot be organised under this methods of departmentation. If it is so, the cost of operation will be high.

Type # 5. Departmentation by Process:

This type of Departmentation is followed when the production activities are carried on in many places. For example, a textile mill has many departments such as Ginning, Spinning, Weaving, Dyeing and Printing, Packing and Sales. Each section will be in charge of separate specialised persons.


i. The costlier machines can be used effectively.

ii. There is no interruption of the departments or process in other production processes. The requirement and renewals of any process cannot affect the production of other processes.

iii. There may be economy in operation.

iv. There is no duplication of activities.

v. The principle of specialisation and division of labour is followed under this method of departmentation.

vi. This departmentation helps the top management to have effective performance control.

vii. This type of departmentation is more suitable to any business unit which manufactures a product passing through a number of processes.


i. Separate rooms for operation and other facilities should be given to all the process. This results in heavy cost of operation.

ii. More specialists are essential to each process.

iii. It does not give good training to staff members and there is a lack of overall development of the managerial talents.

Type # 6. Departmentation by Time:

The business activities are grouped together on the basis of the time of the performance. If the work is not completed within the normal working hours, extra time will be given to complete it after the normal working hours. Only interested persons are requested to do the job and one person is responsible to supervise them. Whatever be the work performed after the normal working hours, a separate department will be in charge of this type of activity. This type of departmentation is known as departmentation by time.

Type # 7. Departmentation by Numbers:

Similar types of duties are performed by small groups. Each group is controlled by a supervisor or an executive. For example, in the Army, soldiers are grouped into squads, battalions, companies, brigades and regiments on the basis of allotment of men to each unit. The principles of span of management span of control or span of supervision is used under this type of departmentation.

Type # 8. Departmentation by Marketing Channels:

This type of departmentation is adopted on the basis of the channel of distribution chosen by the particular business unit. Normally the channel of distribution is selected by the business unit on the basis of nature of goods and marketability of the product. This method of departmentation has grown in importance as business has become increasingly market-oriented.

Types of Departmentation – Functional, Product, Geographical, Customer, Process or Equipment, Project or Matrix Departmentation, Team Structures and a Few Others

Departmentation is the way in which an organization groups its various activities. There are many ways in which organizations can be departmentalized. We shall take some examples of organizations in India to note that large organizations may use a combination of departmentalization methods in their organization structure. Let us first discuss the fundamental types of departmentation.

Type # 1. Functional Departmentation:

In this form of departmentation, similar activities or functional areas are grouped together. As shown in Figure 3.4, the directors of operations, marketing, finance, and human resources report to the Chief Executive Officer (CEO).

A major advantage of this kind of departmentation is that the principle of specialization is utilized to bring about efficiency in the organization. A major drawback is that the complete focus upon functional areas at lower level of the hierarchy leaves the responsibility of the overall performance of the organization on the higher level.

Figure 3.5 shows a functional form of departmentation in a hospital, whereby the functional areas are medical services, non-medical services, nursing, and hospitality services. The head of medical services oversees the doctors, manager (inpatient services) and manager (medical records).

The head of non-medical services is reported by manager (maintenance), manager (outpatient services) and manager (billing and insurance). All the nurses report to the head (nursing). The head of hospitality services has manager (food and beverages) and manager (housekeeping) under him.

Type # 2. Product Departmentation:

An organization which is into manufacturing many products may find the functional departmentation too slow to respond to the market changes for various products. A product departmentation as shown in Figure 3.6 is more suitable for such organizations.

For example, vice-president (soaps), vice-president (detergents), and vice-president (cosmetics) all report to the president of an organization. Each of these vice-presidents has GMs with functional responsibilities of, say, marketing, manufacturing, and supply chain management of their respective products.

A major advantage of this kind of departmentation is that the managers responsible for their products get the opportunity of managing all the facets and functional areas in totality. Later, it becomes easier for them to don the role of the organizational head, as they have experience of managing complete entities rather than only a functional area. A major disadvantage of this form of departmentation is the duplication of resources in the various product divisions.

Type # 3. Geographical Departmentation:

Geographical departmentation is the grouping of the organization according to the territorial areas, nationally or internationally. This kind of departmentation is suitable for organizations operating in various markets scattered geographically.

Figure 3.7 shows the geographical departmentation in which the GM (sales) is reported to by the regional managers of the four regions in which India is segregated, namely north, south, east, and west. The regional managers are, in turn, reported to by the managers covering various states.

Figure 3.8 shows the organization structure of a Navratna public sector unit (PSU)—NTPC. It can be noted that the upper part of the structure is organized as functional departmentation with functions like HR, Finance, Projects, etc., while the lower part is departmentalized as per the geographical territories like

Northern Region (NR), Southern Region (SR), National Capital Region (NCR), etc. The Executive Director (SR) is reported to by the GMs of the three plants at Ramagundam, Simhadri, and Kayamkulam.

A major advantage of geographical departmentation is that the managers can focus upon the unique requirements of their region. The challenge however is for the top management to coordinate and control the managers in geographi­cally dispersed regions.

Type # 4. Customer Departmentation:

The focus in customer departmentation, as the name implies, is upon the customer. Here, managers are assigned different types of customers to service. For example, as shown in Figure 3.9, a GM takes care of institutional customer accounts (these are companies which give bulk orders), another GM is in charge of consumer sales (individual customers), the third GM is into government sales and the fourth GM services overseas customer accounts.

The biggest advantage of such a departmentation is that the managers are able to address their customer’s needs promptly and as per their unique requirements, while building long-term relations with them. The drawback however is under- utilization or duplication of resources for various types of customer divisions.

Type # 5. Process or Equipment Departmentation:

Process or equipment departmentation is found in manufacturing organizations in which parts of the production process are segregated to improve efficiency in the system. As shown in Figure 3.10, the plant head is reported by Assistant General Managers (AGMs) for the machine shop, foundry, final assembly line, engine assembly, and the paint shop. This kind of departmentation can be done on the basis of the equipment types as well. For example, welding, drilling, lathe machining, etc.

Such a departmentation is especially useful when the variety of products manufactured in the plant is very large. However, when the variety of products produced is relatively less and the products can be grouped into similar processing requirements and sequence, this departmentation would be rendered less useful. The manufacturing cells (based upon a cellular layout) containing different machines organized in the processing sequence of a product group have been found to be more efficient in that scenario.

Type # 6. Project or Matrix Departmentation:

Project or matrix departmentation is a form of hybrid departmentation in which any two types of departmentation are conjoined to address a unique requirement. For example, the functional departmentation can be conjoined with product departmentation in a manner as shown in Figure 3.11 whereby personnel from different functional areas like mechanical engineering, electrical engineering, civil engineering, etc. are assigned to (say, new product development) projects.

The personnel are either assigned to the projects on a full-time or part-time basis depending upon the extent of their involvement/requirement in the projects. During the period of their involvement in projects, such employees have dual reporting—to their functional head and the project head.

The extent of authority vested in the project head on such personnel deputed from functional departments can vary on a case to case basis. After the culmination of the project, such personnel are sent back to their respective departments to perform their routine duties.

A major advantage of this departmentation is the congregation of people with varied expertise in the project team to facilitate the cause of the project within a specified time frame. The disadvantage is difficulty in Control mechanisms and performance appraisals due to dual reporting of such employees.

Type # 7. Team Structures:

In contemporary organizations, informal and formal teams have become com­monplace. The phenomenon of quality circles and TPM (Total Productive Maintenance) circles were instrumental in the creation of informal voluntary teams of workers in organizations during the 1980s and 1990s. These teams were formed voluntarily by workers to find workable solutions to problems faced in their work domains/machinery or to find better ways of doing things.

Concurrent Engineering:

It is a product design approach in which the design team includes personnel from the marketing department (to specify the customer requirements), engineering department (to look at the feasibility of the design), production department (to suggest if production capability exists for the design), materials department (to give inputs about the materials availability according to design specifications), and finance department (to suggest financial feasibility of the design) in addition to the design department. Thus, concurrent engineering involves a team structure.

This approach is radically opposite to the classical sequential product design approach in which design process takes place in stages moving from one department to other. Thus, the interdepartmental concurrent engineering teams save a lot of time and effort unlike the sequential approach in which feedbacks between departments, at times leading to rejections of the suggested designs at later stages, results in wastage of a lot of time and effort.

Type # 8. Network Structures:

Network structures are relatively a new phenomenon whereby organizations have started making alliances and collaborations with their vendors, which extend beyond the conventional supplier-manufacturer relationships. The trust and confidence exhibited by organizations in treating their vendors as close partners has been the hallmark of recent times. Outsourcing is just one brick of this radical phenomenon.

With its Scorpio SUV, Mahindra & Mahindra (M&M) has broken the unspoken rule that says automakers must design, engineer, and test their own vehicles while spending hundreds of millions of dollars in the process.

Along the way, they can divvy up contracts to suppliers who will build the components for them. Mahindra, instead, tried something suppliers had been suggesting for years. The company built a brand-new vehicle with virtually 100 percent supplier involvement from concept to reality for $ 120 million, including improvements to the plant.

The new Mahindra Scorpio SUV had all of its major systems designed directly by suppliers with the only input from Mahindra being performance specifications and program cost. Design and engineering of systems was done by suppliers, as was testing, validation, and materials selection. Sourcing and engineering locations were also chosen by suppliers.

Tata’s are trying to bring a new dimension to the network structure through their ambitious Nano car project. In view of the socio-economic dimension in manufacturing the car, the company is looking at small satellite units, with very low break-even points, where the cars would be assembled, sold, and serviced.

Tata’s are planning to encourage local entrepreneurs to invest in these units, and to train these entrepreneurs to assemble the fully knocked-down or semi- knocked-down components that Tata’s would send to them. These entrepre­neurs would also sell the assembled vehicles and arrange for their servicing. This approach would replace the dealer, and, therefore, the dealer’s margin, with an assembly-cum-retail operation that would be combined with very low-cost ser­vice facilities.

Type # 9. Boundaryless Organization:

Leading-edge web-based technologies have brought radically new organization structures called virtual/boundaryless into existence. A typical example is that of “Wikipedia” (www(dot)wikipedia(dot)org), which has become the world’s biggest online encyclopedia just within a short time span after its launch on 15 January 2001.

The Wiki technology has allowed the updating of the Wikipedia content by anybody across the globe at any point in time. The whole content has been added by volunteers, who also act as watchdogs and promptly eliminate any discrepancies on the pages of their interest in Wikipedia.

Wikipedia has content on virtually any topic and has become the most popular source of ready-to-use information. Wikipedia is written collaboratively by volunteers from all around the world; anyone can edit it. Since its creation in 2001, Wikipedia has grown rapidly into one of the largest reference websites, attracting at least 684 million visitors yearly by 2008.

There are more than 75,000 active contributors working on more than 10,000,000 articles in more than 260 languages. As of December 2008, there are 2,677,698 articles in English. Every day, hundreds of thousands of visitors from around the world collectively make tens of thousands of edits and create thousands of new articles to augment the knowledge held by the Wikipedia encyclopaedia.

Wikimania is a conference for users of the wiki projects operated by the Wikimedia Foundation. Held every year at a new international location, Wikimania is organized by volunteers, who are the users of Wikipedia.

Most large organizations incorporate a combination of departmentation types. In the organizational structure of the State Bank of India shown in Figure 3.12, functional departmentation is evident with National Banking, Rural Business, Mid-Corporate, Corporate Banking, International Banking, Global Markets, and Associates & Subsidiaries.

Under the National Banking functional unit, customer departmentation has been done with Personal Banking Business Unit, Government Business Unit, Small & Medium Enterprises (SME) Business Unit, Banking Operations, and Marketing-Cross Selling.

Geographical departmentation has also been done for National Banking and Rural Business jointly in the form of Local Head Offices (LHOs), Regional Offices and Branches.

Types of Departmentation – By Functions, Product, Regions, Customer, Process, Time, Numbers and Marketing Channel

There are certain basic methods of dividing responsibilities within an organisation structure.

They are:

(1) By functions,

(2) By product or service,

(3) By regions,

(4) By customers,

(5) By process,

(6) By time,

(7) By numbers, and

(8) By marketing channel.

1. Functional Basis:

This is a very popular method of departmentation. This method of departmentation refers to grouping of activities of the enterprise into major functional departments like production, sales, purchases, accounts, personnel, etc.

Each department is headed by an executive who is directly responsible to the top executive. According to George R. Terry, “the functions or activities are the pivot around which effective executives develop effective and efficient organisation”.

2. Departmentation by Product or Services:

This type suits to organisation which manufacture multi-products. Under this, for each major product manufactured, a separate department is created and each department is put in charge of a manager. For example, an electric company may have different departments dealing with light bulbs, fluorescent tubes, household electric appliances, etc.

Each product department may be responsible for production and sales as also finance, personnel, accounting, public relations, etc. The departmentation by product is also known as multifunctional product departmentation because each department handles all the functions concerning it.

Combined Type:

Some business concerns, in order to secure advantages of both the functional and product departmentation, have adopted a composite pattern of departmentation, i.e., a combination of functional and product departmentation. Under this method, some functions such as finance, personnel, public relations relating to all departments may be placed in separate departments and the remaining functions may be performed under the respective product departments.

By adopting the combined type of departmentation, the business concern can enjoy the advantages of both functional and product departmentation. However, there is the need for making a clear distinction between line and functional authority.

3. Departmentation by Regions or Territories:

Departmentation by regions may also be called departmentation by territories or areas. This method may be suitable for enterprises whose activities are widely dispersed. Activities may be grouped area-wise and assigned to the executives in charge of the respective areas. For instance, sales activities of an enterprise can be organised area-wise. This is because adaptation to local situations and customer needs, peculiar to a given area, is easier under this type of departmentation.

The sales manager can appoint local people as salesmen. These salesmen will be naturally familiar with the local language and the preference of the consumers. Further, there will be no communication barrier.

4. Departmentation by Customers:

An enterprise may be divided into a number of departments on the basis of the customers that it serves. For example, a commercial bank may divide its loan section into a number of departments, each specialising in loans to traders, industrialists, professionals, agriculturists, etc. Similarly, the sales department of a business concern may be divided on the basis of customers.

5. Process-Wise Departmentation:

In this method of departmentation, the enterprise is organised on the basis of processes involved in the manufacture of the product. For example, a concern engaged in the production of oil may have separate departments for crushing, refining and finishing. Similarly, a cotton textile mill may have separate departments for ginning, spinning, weaving, dyeing and printing and packing and sales.

6. Departmentation by Time:

This method is one of the oldest forms of departmentation and is used at the lower levels of management. It involves the grouping of activities on the basis of the time of their performance. For example, the use of shifts is very common in many manufacturing concern and to look after the work relating to each shift, a separate department may be created. Generally, this type of the departmentation is found in the production function of the enterprise.

This basis of departmentation can be advantageously applied by firms which cannot cope with the volume of work within the normal working hours. But the disadvantage of this system is that there is the problem of co-ordination among the workers of different shifts.

7. Departmentation by Numbers:

In the case of departmentation by numbers, the persons who are to perform the same duties are divided into small groups and then each group is placed under the control of a supervisor or officer. For example, in the army, troops are grouped into squads, battalions, brigades and regiments on the basis of the number of men prescribed for each unit. In the industrial world, this method of departmentation is not used.

8. Departmentation by Marketing Channels:

Under this system, departmentation takes place on the basis of channels of marketing used by the enterprise. It is one of the new forms of departmentation. This form is similar to the customer-wise departmentation but its basis is the marketing channels. This method of departmentation has grown in importance as businesses have become increasingly market-oriented.

Thus, we see, there are a large number of alternative methods of departmentation. All the methods possess certain merits and demerits. For selecting any method, the management must consider factors such as the nature of the enterprise, the nature of product technology employed, the people involved etc., and must balance the advantages of having one method of departmentation as against the disadvantages of another.

According to Koontz and O’Donnell, “the process of selection involves a consideration of the relative advantages of each type at each level in the organisation structure. In all cases, the central question concerns the type of environment that the manager wishes to design and the situation being faced”.

Types of Departmentation – 11 Ways in which Departmentation may be Carried Out: By Functions, Process, Products, Territory, Numbers, Committees and a Few Others

The first step in designing an organization structure is to divide whole work into a number of jobs to ensure that no important activity is left out. The next step is to bring together homogeneous jobs into groups and to decide their relation to each other. This process is known as departmentation, and it involves a decision, by the chief executive, concerning a logical division of work to be done, and leads to the establishment of a number of manageable units.

This facilitates horizontal expansion of the organization. Having marked off such logical units, the CEO then will assign each of these units to a competent individual to secure intended results. Such individuals are generally specialists by qualifications and experience, in the particular activity, and after appointment, they may be allowed to continue to specialize in that activity still further. Thus, the organization is able to enjoy advantages of specialization. Further, it enables top management to channelize its efforts to direct, co-ordinate, and control activities of all departments.

There are different ways in which departmentation may be carried out:

(1) Departmentation by Functions:

Under this, the grouping of activities is done on the basis of functional specialization, for example, in a manufacturing concern; there may be such departments as –

Production – Manufacturing, fabrication, assembly, tooling, purchasing, scheduling, production control, material control, quality control.

Sales – Selling, advertisement, sales promotion, training.

Finance – Fund control, credit and collections, accounting.

Operations – Engineering, maintenance.

Gradually, new departments of quality control, industrial engineering, market research, maintenance, purchasing, secretarial etc., have also come up.

(2) Departmentation by Process:

This is suitable only for organizations whose manufacturing activity consists of clearly marked out processes e.g., a textile mill has spinning, weaving, dyeing, bleaching, printing, and packaging departments, each based on a separate process. Similarly, an engineering company or a petro-chemical unit may have such process departmentation.

(3) Departmentation by Products:

This is suitable for an organization, manufacturing a number of important products, for example, toilet soaps, detergents, hydrogenated oil and cattle feed. This method has a distinct advantage that personal skills and specialized knowledge of product, manager can fully utilize.

(4) Departmentation by Territory/Location:

This is necessary particularly when the activities are spread over a large area. This reduces the volume of work and makes it manageable for the individual manager. It also allows him specialize in the peculiar problems of his region.

(5) Customer Departmentation:

This is necessary when a manufacturer wants to sell to both the wholesalers and industrial buyers and wants to cater to the needs of both.

This is also useful for grouping the sales activity by those who cater to classes of customers having different needs.

(6) Equipment Departmentation:

Here the purpose of grouping activities on such a basis is to achieve certain economic advantages. For instance, in electrolytic process, we require economic utilization of small units of those apparatus and also heavy specialized capital.

(7) Departmentation by Numbers or by Time:

A number of persons pursuing a set of activities may be a basis of departmentation. In this pattern, the department (a number of persons formed in a group) is assigned a task and it reports to the manager to whom it is responsible for fulfillment of the task. e.g. a gang in Railway Electricity Boards etc.

All allied methods of grouping, by time, have a limited applicability. It often goes with the preceding method, so that a group working for a definite period makes the joint criterion of departmentation e.g., shift in factory work.

(8) Departmentation by Committees:

In many organizations, committees are often placed in charge of functions and play role of departments. This method is seen in operation in academic, professional and research institutions.

(9) Matrix or Grid Method of Departmentation:

Matrix or Grid structure is a mosaic of task and functions. In a sizeable programme or project, the task often is formidable, yet temporary, as all programmes must be completed on time. In this matter, opposing and execting demands on the organization are met by an innovation known as Matrix or Grid structure. Departmentation is also of various types, depending on the level of management.

(10) Primary Departmentation:

It is immediately below the general executive officer. At this level, the claims of functional basis of departmentation are strong.

(11) Intermediate Departmentation:

Ultimate departmentation is departmentation at the lowest level of the organization structure. Making of the departmentation is always necessary to make the organization flexible.

The basic purpose of departmentation is to make the size of each departmental unit manageable, and to secure advantages of specialization for the organization. Whatever the basis of departmentation adopted, there may be all sorts of pressures to increase number of departments in course of time. This, however, will have advance effects on efficiency of the organization. Top management must, therefore, have some criteria for guidance as to how far to go in this direction and where to stop.

Some suggested criteria for grouping of activities are:

i. Specialization;

ii. Co-ordination;

iii. Control;

iv. Adequate Attention to Important Work;

v. Cost Consideration; and

vi. Human Considerations.

Types of Departmentation – On the Basis of Functions, Product, Regions, Process, Customers and Matrix (With Merits and Demerits)

There can be many methods of Departmentation. Every enterprise chooses the appropriate basis or method depending upon its objectives, size, etc.

I. On the Basis of Functions.

II. On the Basis of Product or Services.

III. On the Basis of Regions.

IV. On the Basis of Process.

V. On the Basis of Customers.

VI. On the Basis of Matrix.

I. On the Basis of Functions:

This is the simplest and the most prevalent basis for Functional Departmentation. Under this all the functions of similar nature are divided in different units which are called departments. For example- the functions of a manufacturing concern can be divided into production department, marketing department, financial department and personnel department.

Again, sub-departments can be established in each department. For example in the marketing department three sub-departments of sales, advertisement and market research can be established. The officers of the sub-departments are answerable to the head of the department and the head of the department is answerable to the general manager.

Departmentation on the basis of functions is shown in the following diagram:


For the evaluation of Departmentation on the basis of functions, it is important to know its merits and demerits which are as under:


(i) It is based on the principle of specialisation.

(ii) It establishes coordination on the departmental level.

(iii) It makes it possible to utilise the human and other resources effectively.

(iv) It makes effective control possible.

(v) It is simple and economical.

(vi) It is flexible and changes can be made according to the needs.

(vii) The principle of ‘the unity of Command is well implemented.


(i) Employees happen to be expert in one function and it makes promotion difficult.

(ii) The weakness of one department affects the other departments.

(iii) All the departments function according to their sweet will making inter-departmental coordination difficult.

(iv) This system is a hurdle in the way of the complete development of the employees.

II. On the Basis of Product or Services:

If in a business enterprise many types of goods are manufactured, Departmentation is done on the basis of product instead of function. If it is not so, there is a constant fear that the production of some things and their marketing will consume much time while some other things will get only a little attention. Consequently, some products will be sold in greater number while the others will find little market.

To avoid such a situation all the functions of the enterprise are divided on the basis of product and distributed among different departments. The head of the department looks after all the functions connected with that product that is, purchase, sale, advertisement, production, financial, etc. All these functions are performed separately by different departments.

This process has been made clear in the following diagram:


Departmentation on the basis of products have the following merits and demerits:


(i) It is possible to give equal importance to every product.

(ii) Information about the profit and loss from every product is available.

(iii) Because for every new product a separate department can be opened, it is easy to expand the concern.

(iv) All the departments are independent units and, therefore, the weakness of one department does not affect the other.

(v) This system makes possible the complete development of the managers.

(vi) The managers get full opportunity to display their ability or competence.

(vii) The competition among all the product departments and their managers bring profitable results for the concern.

(viii) The benefits of specialisation become available.


(i) It increases expenses because of duplicity of functions in the product departments.

(ii) Resources are misused.

(iii) This system is suitable for the big concerns.

(iv) There is a difficulty in exercising control at the top hierarchy.

III. On the Basis of Regions:

Departmentation is done on the basis of regions when the customers of some business concerns are not confined to local regions but are spread over a larger region. The chief reasons for such Departmentation is intended to keep in mind the tastes and difficulties of the customers which happen to differ from region to region. If the business of a concern is spread all over the country, the business may be divided into four regions or zones instead of controlling the business from a single place.

For example- the division can be like North Zone, South Zone, East Zone, and West Zone. Each zone is in itself a complete business unit and for which a separate zonal manager is appointed. The zonal managers remain in touch with their customers and understand their problems. They can easily solve them.

Under each zone Departmentation can be done on the basis of either functions or products which have been made clear in the following diagram:


The merits and demerits of Departmentation on the basis of regions are as under:


(i) Because of the direct contact with the customers their problems can be easily understood and solved.

(ii) Local competition can be easily faced.

(iii) Effective regional control is possible.

(iv) Such an organisation has the benefit of local factors- like the raw material, labour, market, etc.

(v) Information about the local profit and loss position makes more investment possible in the profit yielding region.

(vi) The competition to show good profits among the regional managers benefit the concern.


(i) Some functions which can be handled more economically at the central level become expensive at the regional level.

(ii) Policies cannot be implemented effectively because of the distance between the planners and the implementers.

(iii) More managerial employees are required which increases expenses.

(iv) Control becomes difficult because of the distance between the head office and the regional offices.

IV. On the Basis of Process:

This method of Departmentation is profitable for those industrial concerns whose products have to pass through various processes. For example- in a cloth manufacturing concern Spinning, Weaving, Dyeing and Printing and Packing departments can be set up. In all the departments different machines are used to go through different processes which are run by specially qualified persons.

Departmentation on the basis of process has been shown in the following diagram:


Departmentation on the basis of process has the following merits and demerits:


(i) Human resource can be effectively utilised.

(ii) Expert employees can be appointed.

(iii) If the cost of production in a particular department is excessive, it can be closed down, and the same product can be purchased from the market.

(iv) If the cost of production in a particular department is very little, the department can be expanded and the manufactured product can be sold in the market to earn more profits.


(i) In this method of Departmentation all the departments depend on one another. Hence, on the closure of one department the other departments close down automatically.

(ii) If a particular department produces an inferior product, the quality of the product in other department too goes inferior.

V. On the Basis of Customers:

This method of Departmentation is adopted in those business concerns that have to deal with various types of customers. For example- if a business concern has wholesale trade, retail trade and export trade, it can have three different departments for this purpose to look after all the three different types of customers as has been shown in the following diagram –


Departmentation on the basis of customers has the following merits and demerits:


(i) All the customers can be easily satisfied.

(ii) All the problems of the customers can be quickly solved because of the direct contact with all the different types of customers.


(i) Expenses are increased in spite of the difference in the size of departments because the facilities provided (in the form of managers and other employees) happen to be the same.

(ii) Because of the different types of customers the number of products manufactured increases for which the department of production has to face a difficulty.

(iii) Coordination is difficult.

VI. On the Basis of Matrix:

This method of Departmentation is useful for those business concerns whose functions go on changing frequently. For example- an Engineering Company daily gets orders to manufacture new machinery. Similarly, a Construction Company gets contracts for building big buildings, roads, bridges, etc. In such concerns no single method or base of Departmentation is helpful and two and more than two methods are used simultaneously. Therefore, it is known by the names of combined, grid, etc.

Under this method both the methods – on the basis of functions and on the basis of products – are used in a combined manner. First of all the activities of a company are divided on the basis of functions and departments are established which happen to be the permanent departments of the organisation. For example- the purchase department, manufacturing department, finance department, research and development department, etc.

For all these departments permanent heads of the department are appointed who have the final authority regarding their departments. After the establishment of these permanent departments, the Departmentation on the basis of project or product is done the moment the concern gets an order.

This has been shown in the following diagram:

When the company gets a particular work a team comprising of officers from different functional departments is established under the leadership of Project Manager. For example- when the company gets an X project a separate manager is appointed for it and he is provided with a purchase officer, manufacturing officer, finance officer, and research and development officer as his helpers.

The manager concerned is responsible for the whole project and the moment the work of X project is completed, the Departmentation done on the basis of project will come to an end. Similarly, the work of Y and Z project will go on. Those officers who are provided as helpers to the project manager go back to their respective departments after the completion of their project.

The authority of the project manager over the members of his team is temporary as has been indicated in the diagram with the help of the dotted line. The managers of the functional departments have the orders of the General Manager to fully cooperate with the project managers. The Project Manager is an expert in all the activities connected with the project and, therefore, looks after all the aspects of the project, while, on the other hand, departmental managers are expert only in one particular work.


Departmentation on the basis of matrix has the following merits and demerits:


(1) Plenty of Specialists:

Under this method of Departmentation specialists become available in plenty. For example- heads of various departments created on the basis of functions are experts in their field. Project managers are experts in all the aspects of the projects. The officers have the full knowledge of their particular work. In this way the opinions of the experts can be fully exploited for profit.

(2) Flexibility:

General Manager of the concern can easily make changes in it according to the business opportunities. It means that in case of more projects, more projects managers can be appointed and in case of a few projects, the project managers can be shifted back to the routine functions of the concern.

(3) More Possibility of Expansion:

Departmentation on the basis of matrix increases the possibility of the expansion of the concern because the managers can establish separate departments in respect of each project.

(4) Economy in Costs:

On each project the number of people appointed happens to be according to the need and the remaining persons are put on the routine functions of the concern. In this way economy in costs is affected by making the optimum utilisation of human resources.


(1) Violation of the Principle of Unity of Command:

The principle of the unity of command is violated in such an organisation. The officers receive orders both from departmental managers and project managers. They have to carry out the orders of more than one manager which reduces their efficiency.

(2) Conflicts between Departmental Managers and Project Managers:

The aims and priorities of both the types of managers are different. The project managers desire that whenever they need some services, the departmental managers should immediately make them available. On the other hand, the departmental managers wish to maintain their time schedule in respect of every work, and that their services should be regularly utilised.

(3) Problem of Communication:

The members of the project team do not know whether they should consult the project manager or the departmental manager. Such an ambiguous situation creates problem of communication.

(4) Lack of Responsibility:

In case of failure the project managers blame the departmental managers and the departmental managers shift the responsibility to the project managers.

After studying the merits and demerits of Departmentation on the basis of matrix, we can conclude that this method is useful for the big business concerns who undertake the manufacture of machines or construction work. These days, however, this method is also employed in other business concerns.

Factors to be Considered in Departmentation:

While laying down the organisational structure on the basis of Departmentation the following facts should be taken into consideration:

(1) Specialisation:

Specialisation is the foundation of Departmentation and, therefore, whatever may be the method of Departmentation it must have a place for specialisation.

(2) Coordination:

A department should have the functions of the same nature so that coordination remains intact. Unnecessary and opposing functions should be excluded.

(3) Control:

That method of Departmentation happens to be good which can ensure control. Such a system should be established as can ensure the control of one man’s work by another person.

(4) Significance of Activities:

Departmentation should be done in a manner so as to ensure more attention to the more significant activities. For example- if the advertisement happens to be a significant activity, it should be kept separate from the marketing department so that special attention can be given to it.

(5) Facilities Available:

While going through the process of Departmentation the facilities available in the concern should be kept in mind – facilities like the competence of persons, informal relations in the organisation, etc.

(6) Economy:

The number of departments in a business organisation increases administrative expenses. Therefore, it should be thoroughly considered as to how many departments are needed in a concern so that unnecessary expenses are avoided. For example- by not having a separate accounts department, it can be combined with the finance department and economy can be affected.

(7) To See the Competitors:

During the process of Departmentation care should be taken to know about the basis of Departmentation in the other business concerns having the same business (like yours). If that basis appears appropriate it should be adopted.

Thus, we find that Departmentation is not an easy job. Many factors have to be studied deeply to complete this process. Only after such a deep study the decision taken can prove to be useful.

“Departmentation is a process of dividing the large monoliths functional organization into smaller and flexible administrative units.” – Koontz and O’Donnel.