The basis are: 1. Departmentation by Function 2. Departmentation by Products 3. Departmentation by Customers 5.

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The basis are: 1. Departmentation by Function 2. Departmentation by Products 3. Departmentation by Customers 5. Departmentation by Process 6. Combined Base. Basis of Departmentation 1. Departmentation by Function: Similar activities of a business are grouped into major departments or divisions under an executive who reports to the chief executive. This departmentation is most widely used basis for organising activities and is present in every organisation at some level Fig.

Merits of Departmentation by Function: 1. It suits well the small enterprises for creating major departments. It promotes specialization. It economizes operations and makes possible the adoption of logical and comprehensible structure.

It facilitates inter-departmental co-ordination. It suits well for those organisations which have single product line. Demerits of Departmentation by Function: 1. It may lead to excessive centralization. Decision making process is delayed. Poor inter-departmental co-ordination. It is rather difficult to set up specific accountability and profit centres within functional departments so the performance is not accurately measured.

It hinders human development in all the areas. Basis of Departmentation 2. Departmentation by Product: In a multiproduct organisation the departmentation by product most suits. Here the activities are grouped on the basis of produce or product lines. All functions related to particular product are bought together under the umbrella of product manager.

Each product division can be taken as a viable profit centre for accountability purposes. The performance of individual products can be easily accessed to distinguish between profitable and unprofitable products.

Marketing strategy becomes more pragmatic. Top management is relieved of operating task responsibility and can concentrate on such centralized activities as finance, research etc. It facilitates decentralization. Attention is given to product lines, which is good for further diversification and expansion. Demerits of Departmentation by Product: 1 It increases management cost. Service functions are duplicated both at the top and at the operating levels of management.

Basis of Departmentation 3. Departmentation by Territory: It is suitable for organisations having wide geographical market such as pharmaceuticals, banking, consumer goods, insurance, railways etc. Here, the market is broken up into sales territories and a responsible executive is put in charge of each territory. The territory may be known as district, division or region. The fig. Merits of Departmentation by Territory: 1. Full attention can be paid to local customer groups. A regional division achieves a better co-ordination and supervision of activities in a particular area.

It helps in reducing transportation and distribution costs. It facilitates the expansion of business to different regions. It provides an opportunity to a regional manager to gain broad experience as he looks after the complete operation in a particular territory Demerits of Departmentation by Territory: 1.

It creates the problem of communication and co-ordination between various regional offices. It may be difficult to provide efficient centralized services to various departments located in different areas. Various regional units may become so engrossed in short term competition among themselves that the overall long term interests of the organisation as a whole may be overlooked. The problem of top management control becomes difficult.

Basis of Departmentation 4. Departmentation by Customers: This type of classification is adopted by enterprises offering specialized services. To give the attention to heterogeneous groups of buyers in the market, marketing activities are often split into various several parts. The general organisation of this type of departmentation is depicted big fig 6.

The main advantage of following this type of departmentation is that particular needs of the particular- customers can be solved. Benefits of specialization can be obtained. Demerits of Departmentation by Customers: 1. There may be duplication and underutilization of facilities and resources. It may be difficult to maintain co-ordination among the different customer departments. Basis of Departmentation 5. Departmentation by Process: The production function may be further subdivided on the basis of the process of production when the production process has distinct activity groups, they are taken as the basis of departmentation.

The departmentation by process can be shown as Fig 6. It is useful for organisations which are engaged in the manufacture of products which involves several processes. Merits of Departmentation by Process: 1. It provides economy of operation 2.

The benefits of specialization are available. It simplifies supervision and plant layout. Demerits of Departmentation by Process: 1. There may be difficulties in coordinating the activities of different departments 2. Due to specialized activity, the employee mobility is reduced. Extreme specialization may reduce flexibility of operations. This type of departmentation may not provide opportunity for the all-round development of managerial talent. Conflicts may arise among managers of different processes, particularly when they loose sight of the overall company goals.

Basis of Departmentation 6. Departmentation-Combined Base: Sometimes, several bases of departmentation may be used simultaneously. Denotes the combined base departmentation.

First the organisation is divided on the basis of functions. The marketing department is further divided on the basis of product lines i. The refrigeration division is further divided on the basis of territory and the territory is further divided on the basis of customers i. Combined base departmentation is also called as composite departmentation or mixed departmentation. This type of departmentation provide the benefits of both functional and product structures. But the conflicts between different departments and division may increase.

It becomes necessary to differentiate clearly between the line authority and functional authority of managers. Related Articles:.


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