Departmentalization: Definition, Types (How Departmentalization Works)

What is DepartmentalizationDepartmentalization means grouping activities and people into departments, making it possible to expand organizations, at least in theory, to an indefinite degree.

Departmentalization refers to the formal structure of the organization, composed of various departments and managerial positions and their relationships with each other.

As an organization grows, its departments grow and more sub-units are created, which in turn add more levels of management.

This often creates less flexibility, adaptability, and units of action within the firm.

Departmentalization is the efficient and effective grouping of jobs into meaningful work units to coordinate numerous jobs—all for the expeditious accomplishment of the organization’s objectives.

Two particular things need to consider before setting the formal structure of the organization or the Departmentalization.

They are; basic organizational units and coordinating structure.

Related: Managers Must be a Leader

Types of Departmentalization

Departmentalization results from the division of work and the desire to obtain organization units of manageable size and to utilize the managerial ability.

An organization structure and design are shaped significantly by the Departmentalization followed.

The means of Departmentalization are by

  1. Functional Departmentalization.
  2. Departmentalization by Territory.
  3. Departmentalization of the organization by customer group.
  4. Matrix departmentalization.
  5. Planning Task Force.

An organizer is free to use any means of departmentalization in constructing an organization structure.

In fact, in any given structure several means are typically used.

1. Functional Departmentalization

Functional departmentalization groups together jobs which are involving the same or similar activities. It allows the organization to staff all important positions with functional experts and facilitates coordination and integration.

2. Departmentalization by Territory

Departmentalization by Territory method is followed where; unless to local conditions appear to offer advantages, such as low cost of operation and opportunities to capitalize on attractive local conditions as they arise.

Territorial departmentalization is especially popular for sales where division appears feasible according to some geographic market segregation.

3. Departmentalization of the organization by customer group.

Customer departmentalization is where the organization’s activities are ready to respond to and interact with specific customers or customer groups.

This organizational form is used when the great emphasis is placed on effectively serving different customer types.

4. Matrix departmentalization

Matrix departmentalization attempts to combine functional and task force (project) departmentalization designs to improve the synchronization of multiple components for a single activity (i.e., a moon launch), to improve the economics of scale, and to better serve the customer and company.

5. Planning Task Force

The planning task force is most often formed when the organization requires addressing special circumstances. It is more preferable, and efficient than maintaining a different planning staff or department.

How Departmentalization Works in an Organization

Basic Organization units

The basic pattern of many organization structures revolves around three fundamental activities: production, ‘U’, marketing, and finance.

The terminology may vary from firm to firm, and in non-business organizations, the functions may be more obscure (i.e., in churches, “marketing” may be called “evangelism”), but essentially all the three activities must be implemented for the organization to survive.

Why are these three activities fundamental? Most companies are concerned with producing a product or service for use by others.

Since it is produced for use by others, it must be distributed or marketed;

that is,

people must be found who want the product or service and are willing to accept it at terms mutually agreeable to the seller (enterprise) and the buyer.

Also to produce and to distribute the product or service necessitate raising and maintaining sufficient capital; that is, the financing activities must be performed by some members of the enterprise.

The scope of the three fundamental organization units and the complexity of the enterprise give rise to additional organization units.

These types result mainly from such things as the nature and amount of the work to be done, the degree of specialization practiced, and the people and the workplaces available for the work.

To illustrate,

Under the fundamental unit of marketing, the scope of the work may be so broad that it is believed advantageous to divide the work into advertising, sales promoting, and selling.


the manager in charge of sales splits advertising and sales promoting activities, and for each, places a subordinate in charge.

A sales manager is appointed to manage the selling work in the field. These three additional units appear in the organization structure at the level immediately below that of the fundamental unit of sales.

In like manner, assume that the manager in charge of production has established units of engineering and research, factory work, and also purchasing.

Coordinating structure

As was stressed in the discussion of division of labor, an organization must be viewed by all managers at all levels as a cohesive whole, never as separate, independent functional units.

The organization is a system of integrated parts, and to give undue emphasis to any functional part at the expense of the entire organization creates organizational islands, thus resulting in inefficiency and significant behavioral problems.

Astute managers must recognize the potential for these gaps to exist (and their actual existence) and develop programs to integrate supportive functions to accomplish overall organizational objectives.

Interdepartmental committees comprised of employees from

  • finance, accounting, marketing, production, and other departments;
  • management development programs for all management and supervisory personnel that teach basic management principles from an overall organizational perspective;
  • job rotation, in which employees perform different jobs; and
  • task forces composed of personnel to work on specific projects within time parameters are all methods that can aid in achieving this desired integration.

Choosing the Best Type of Departmentalization

No one way of departmentalizing is suitable for all organizations and all situations.

If the CEOs know the various departmentalization patters and the advantages, disadvantages, and dangers of each, they should be able to design the organogram most suitable for their particular operation.

They may determine what is best by looking at the situation they face the jobs to be done and the way they should be done, the people involved and the level of their skill, the technology being used, and other internal and external environmental factors in the situation.

It must be remembered, that the objective of departmentalization is not to build a rigid structure, balanced in terms of levels and characteristics by consistency and identical bases, but to group activities in the manner that will best contribute to achieving enterprise objectives.

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