Departmentalization (or departmentalisation) refers to the process

of grouping activities into departments. Division of

labour creates specialists who need coordination. This coordination is
facilitated by grouping specialists together in departments.

Contents

 1Popular types of departmentalization

 2Some philosophical considerations
 3Recent trends in departmentalization
 4References

Popular types of departmentalization[edit]

 Functional departmentalization - Grouping activities by functions
performed. Activities can be grouped according to function (work
being done) to pursue economies of scale by placing employees
with shared skills and knowledge into departments for example
human resources, IT, accounting, manufacturing, logistics, and
engineering. Functional departmentalization can be used in all
types of organizations. Group activities in accordance with the
function of an enterprise
 Product departmentalization - Grouping activities by product line.
c cs can also be grouped according to a specific product or service,
thus placing all activities related to the product or the service under
one manager. Each major product area in the corporation is under
the authority of a senior manager who is specialist in, and is
responsible for, everything related to the product line. LA Gear is
an example of company that uses product departmentalization. Its
structure is based on its varied product lines which include
women’s footwear etc.
 Customer departmentalization - Grouping activities on the basis
of common customers or types of customers. Jobs may be grouped
according to the type of customer served by the organization. The
assumption i c s that customers in each department have a
common set of problems and needs that can best be met by
 specialists. The sales activities in an office supply firm can be
broken down into three department c cs that serve retail, wholesale
and government accounts.
 Geographic departmentalization - Grouping activities on the
basis of territory. If an organization's customers are geographically
dispersed, it can group jobs based on geography. For example, the
organization structure of Coca-Cola has reflected the company’s
operation in two broad geographic areas – the North American
sector and the international sector, which includes the Pacific Rim,
tc cc he European Community, Northeast Europe, Africa and Latin
America groups.
 Process departmentalization - Grouping activities on the basis of
product or service or customer flow. Because each process
requires different skills, process departmentalization allows
homogeneous activities to be grouc c cped together. For example,
the applicants might need to go through several departments
namely validation, licensing and treasury, before r c c ceceiving the
driver’s license.
 Divisional departmentalization - When the firm develops
independent lines of business that operate as separate companies,
all contributing to the corporation profitability, the design is called
divisional departmentalization or (M-FORM). For example, the
Limited. Inc., has these divisions: Th Limited, Express, Lerner New
York, Lane Bryant and Mast Industries.
Owing to the complexity of tasks and the competitive environment in
which organisations operate, they often use a combination of the
above-mentioned methods in departmentalization.

Some philosophical considerations[edit]

As March and Simon (1958) noted when tracing a first approach to
departmentalization back to Aristotle (Politics, Book IV, Chap. 15), the
problem of distributing work, authority and responsibility throughout an
organization is hardly new. In modern times, Gulick and Urwick (1937)
were the first to introduce a theory of different departmentalization
strategies, which were referred to as departmentalization by
purpose and departmentalization by process.
”First [organization by major process] ... by bringing together in a
single office a large amount of each kind of work (technologically
measured), makes it possible in the most effective divisions of work
and specialization. Second, it makes possible also the economies of
the maximum use of labor saving machinery and mass production.
... there is danger that an organization erected on the basis of purpose
will fail to make use of the most up-to-date technical devices and
specialists because ... there may not be enough work of a given
technical sort to permit efficient subdivision.
Is there any advantage in placing specialized services like private
secretaries or filing in [process departments]? In a very small
organization, yes; in a large organization, no. In a small organization,
where there is not a full-time job on some days for a secretary, it is
better to have a central secretarial pool than to have a private
secretary for each man. In a large organization, the reverse is true.”
(Gulick & Urwick, 1937)
Studying the above characterizations of the two forms of
departmentalization we note that purpose decentralization is
concerned with building work around specific products, customers, or
geographic locations, while process departmentalization
encompasses the efficiency of ”production”. March and Simon (1958)
described the basic difference between the two ways of
departmentalization as following:
”Process departmentalization generally takes greater advantage of the
potentialities for economy of specialization than does purpose
departmentalization: purpose departmentalization leads to greater
self-containment and lower coordination costs than process
departmentalization.”

Author's note: Please keep in mind that the content of the term
"process" as it is used today in concepts such as Business Process
Management or business process reengineering differs significantly
from its use by Gulick and Urwick. While G. and U. refer to functional
decomposition when using the term "departmentalization by process",
process orientation in today's meaning is more comparable to what G.
and U. refer to as "purpose departmentalization".

When taking a closer look at the three ways of departmentalization by

purpose–product, customer, and location–we note that there are some
specific advantages related to it.
First, self-containment tends to improve the ability for internal
coordination within the unit. At the same time, the need for developing
and maintaining extensive external coordination mechanisms is
reduced.
Second, a clearer focus on the purpose itself–serving a specific
customer or market–is enabled. On the other hand, the sense of
independence may result in a drift-off from the achievement of the
overall objectives of the organization. Therefore, several authors have
emphasized the need for establishing control systems that serve the
purpose of allowing decentralized decisions, while still aligning all sub-
units to the overall goals of the organization (Drucker 1954, Koontz &
O’Donnell, 1964).
Departmentalization by process, on the other hand, seeks to benefit
from the advantages that are found in high specialization, and tends to
be very efficient in some instances. A high degree of specialization
leads to the development of proficiency and professional competence,
as well as it enables, and implies, the development of centralized
control functions.
On the other hand, the problem of aligning individual and
organizational goals remains. In addition, in this case, we would also
need to consider departmental goals. Also, the high level of
specialization is a barrier for the flexible reallocation of resources
within the organization, i.e. people can not perform other tasks than
those they are working with in their functional occupation. The most
common way of process departmentalization is the division of the firm
into business functions, such as purchasing, manufacturing, sales,
accounting, etc.
Looking at the circumstances encompassing the use of either of the
departmentalization strategies, we find that departmentalization by
process generally is advantageous in cases of stable environments,
while departmentalization by purpose, featuring self-containment and
certain amounts of independence, appears to be the appropriate
strategy for handling changing or unpredictable circumstances. Alfred
Chandler (in: March and Simon, 1958) identified a correlation between
the application of purpose departmentalization and the use of a
diversification strategy:
”The dominant centralized structure had one basic weakness. A very
few men were still entrusted with a great number of complex
decisions. ... As long as an enterprise belonged in an industry whose
market, sources of raw materials, and production processes remained
relatively unchanged, few entrepreneurial decisions have to be
reached. In that situation, such a weakness was not critical, but where
technology, market, and sources of supplies were changed rapidly,
the defect of such a structure became more obvious.”

Recent trends in departmentalization[edit]

 The customer departmentalization has become increasingly
emphasized.
 Rigid departmentalization is being complemented by the use of
teams that cross over traditional departmental lines ("silos").

https://en.wikipedia.org/wiki/Departmentalization