Five ways to departmentalize

Early management writers argued that activities in the organization should be specialized and grouped into department. Work specializations create specialists who need coordination. This coordination is facilitated by putting specialists together in departments under the direction of a manager. These departments are typically based on the work functions performed the product or service offered, the target customer or client, the geographic territory covered, or the process used to turn inputs into outputs. No single method of departmentalization was advocated by the early writers. The method or methods used should affect the grouping that would best contribute to the attainment of the organization’s objectives and the goals of individual units.

Types of Departmentalization:

1) Functional: Groups of employees based on work performed (e.g. engineering, accounting, information systems, human resources).
2) Product: Groups of employees based on major product areas in the corporation (e.g. women’s footwear, men’s footwear, and apparel and accessories).
3) Customer: Groups of employees based on customer’s problem and needs (e.g. wholesale, retail, government).
4) Geographic: Groups of employees based on location served (e.g. North, South, Midwest, East).
5) Process: Groups of employees based on the basis of work or customers flow (e.g. testing, payment).

How are activities grouped? One of the most popular ways to group activities is by functions performed or functional departmentalization. A manager might organize his or her plant by separating engineering, accounting, information systems, human resources, and purchasing specialists into departments. Functional departmentalization can be used in all types of organizations. Only the functions change to reflect the organization’s objectives and activities. The major advantage to functional departmentalization is the achievement of economies of scale by placing people with common skills and specializations into common units.

Product departmentalization focuses attention on major product areas in the corporation. Each product is under the authority of a senior manager who is a specialist and is responsible for everything having to do with his or her product line. One company that uses product departmentalization is Philips India. Its structure is based on its various product lines, which include lighting consumer electronics, domestic appliances and personal care, and medical systems. If an organization’s activities were service related rather than product related, as those of Philips India, each service would be autonomously grouped. The advantage of product grouping is that it increases accountability for product performance, because all activities related to a specific product are under the direction of a single manager.

Customer Departmentalization:

The grouping of activities by common customers:

The particular type of customer the organization seeks to reach can also dictate employee grouping. The sales activities in a computer company, for instance can be broken down into departments that serve individual, corporate and government/ institutional customer. A bank can segment its staff on the basis of whether it serves corporate or individual retail clients. The assumption underlying customer departmentalization is that customers in each department have a common set of problems and needs that can best be met by specialists.

Another way to departmentalize is on the basis of geography or territory – geographic departmentalization (The grouping of activities by territory). The sales function might have western, southern, mid western and eastern regions. If an organization’s customer are scattered over a large geographic area, this form of departmentalization can be valuable. For instance, the organization structure of Coca-Cola in the twenty first century reflects the company’s operations in two broad geographic areas – the North American sector and the international sector (which includes the Pacific Rim, the European community, Northeast Europe and Africa and Latin America).

The final form of departmentalization is called process departmentalization (The grouping of activities by process), which groups activities on the basis of work or customer flow – like that found in insurance companies. Units are organized around common skills needed to complete a certain process. If you have ever been to an insurance company office to claim insurance for a vehicle accident, you’ve probably experienced process departmentalization, where separate departments handle insurance applications, survey and assess damages, and process payments. Because each process requires different skills, this method offers a basis for the homogeneous categorization of activities.

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