Learn what departmentalization is. Study examples of customer, geographic, product, and functional departmentalization, and identify the pros and cons of each type.
Updated: 11/21/2023
Departmentalization | Types, Advantages & Disadvantages
Table of Contents
- What Is Departmentalization?
- Advantages of Departmentalization
- Disadvantages of Departmentalization
- Types of Departmentalization
- Using Multiple Types of Departmentalization
- Lesson Summary
Frequently Asked Questions
What is departmentalization and its advantages?
Departmentalization is a method of organization structure used in many businesses to divide skills, roles, tasks, and specializations within the same company into smaller departments. It is an advantageous method in many business settings because it develops departmental personnel expertise, allows for a tighter control of assignment delegation, and can simplify operations to increase organizational efficiency. Further, it can simplify communications and the organizational roles of employees.
What is departmentalization with example?
An insurance company has expanded its operations across the continent of North America, now offering service in Canada and Mexico. Because the management of many clients takes place across three major countries, the insurance company utilizes geographic departmentalization to offer the best services to their customers by region. Additionally, since the company offers automotive insurance, life insurance, and medical insurance, they also divide their operations based on their product. Because the company uses both product departmentalization and geographic departmentalization to operate most effectively, they are truly users of matrix departmentalization, or gaining the benefits of more than one form of division.
What are types of departmentalization?
While departmentalization is used in many business applications, the most effective type of departmentalization varies between companies. The four types of departmentalization, each of which offers a unique perspective of service, are:
- Functional departmentalization: grouped by organizational role, such as accounting, sales, marketing, and production.
- Product departmentalization: grouped by product line or product type.
- Geographical departmentalization: grouped by location, often based on cultural, social, and political standards.
- Customer or market departmentalization: grouped by clientele, such as government entities or the general public.
Table of Contents
- What Is Departmentalization?
- Advantages of Departmentalization
- Disadvantages of Departmentalization
- Types of Departmentalization
- Using Multiple Types of Departmentalization
- Lesson Summary
Many businesses are designed using a complex organizational structure with many different roles filled by employees who employ specialized talents. The distinction of certain work tasks from other roles within an organization allows the business to remain more focused on its goals overall and realize the potential to achieve the company vision. The ability for a business to function productively and to expand the efficiency of their operations is largely based on a concept known as departmentalization.
What is departmentalization? Departmentalization is defined as an organizational strategy used to divide similar processes or specializations into smaller departments within a company. Specific jobs, processes, tasks, and units are grouped together because of their similarities, meaning that workers with specialized skills can address a broader range of assignments within the same department while utilizing their abilities most effectively. For example, the accounting department within a company may be differentiated from the human resources, research, and engineering departments in the same organization, meaning that accounting personnel can handle a designated set of tasks most adaptive to their skills. Departmentalization as a method of organizational structuring can be found in both private and public organizations.
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There are a few reasons why departmentalization has been used throughout a variety of fields and businesses as an effective way of organizing operations and structuring roles within a company. Primarily, a company can reach its objectives more easily when tasks are divided because there is a more specific management of individualized tasks. The specific main advantages of departmentalization include:
- Maintenance of tight control: When a division of tasks or labor exists, an organization can more closely manage and control where assignments are delegated.
- Simplified operations: Workflow and communication becomes more simplified when each member of the department has a clear specialization and can relate their work to other departments.
- Group of specialized activities: When activities are grouped based on their similarities, new tasks can be sorted more easily into their appropriate departments and be addressed quickly.
- Increased efficiency: An organization can work quickly and seamlessly when skills and tasks are divided to the most appropriate workers and departments.
- Clearly denoted responsibilities and accountability: Workers with known abilities within a department realize their specific roles and are held accountable for demonstrating their skills, which occasionally other departments may not possess.
In addition to these five main benefits, departmentalization may also result in better performance reviews and feedback for employees because they are performing tasks most relevant to their skills. Further, an increase in positive customer service may exist because employees are able to explain their roles and actions more logically. Departmentalization additionally leads to the optimal utilization of company resources, meaning that the use of employees, technologies, money, and materials are at their maximum efficiency. As a result of these factors, an organization is allowed to grow its operations more readily and develop the experience of management.
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Although there are many benefits provided through the use of departmentalization, the concept also faces disadvantage at times. Departmentalization is a highly structured format of management, meaning that it is not the most effective in all situations such as those where change is constant. The largest disadvantages associated with the practice of departmentalization are:
- Less adaptability: In the event of change or a (rare) re-division of labor, some departments would be unable to take on additional responsibilities if the skills did not align with those of their specific grouping.
- More bureaucracy: Decisions are made within departments rather than by higher level management; while the department may be able to function more effectively, the organizational goals may be hindered.
- Difficulty in coordination: Because similar skills and tasks are placed into separate departments, workers may not be able to relate their own tasks and experiences to members of other departments.
- Unintentional competition between departments: As labor is divided, some departments may seek to work faster than others and demonstrate that their workers are more efficient or maintain a higher degree of skill.
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Four types of departmentalization exist in business to create the most effective workflow and allow an organization to achieve its goals in the most logical or direct manner. Departments and labor are divided either functionally, by product or process, geographically, or by the customer or market the product is intended to reach. The following chart examines a general explanation of each main type of departmentalization, as well as the benefits and drawbacks of utilizing each type as a method of organizational structuring.
| Type of Departmentalization | Description | Advantages | Disadvantages |
|---|---|---|---|
| Functional | Departments are organized based on their roles within the organization. For example, a company may have sales, marketing, accounting, production, and human resources departments. | Increased efficiency and expertise because all related activities are performed by the same group of people in the same location; encourages tight control for upper level management; allows for a logical use of functions; each department can become more highly specialized and experienced over time. | Increase in bureaucratic decision-making; slow adaption to change; limits the development of management; potentially leads to overspecialization in some employees. |
| Product or process | Departments are organized by a product line, accounting for the control of all aspects of that product. For example, the mascara department may include the functions of development, production, marketing, sales, and distribution. | Develops employees with high specialization and expertise towards a specific type or line of product; ensures the development of high quality products; provides better control of production and distribution. | Limited communication between departments of related products; presence of repeated tasks or skills within the same department; unsuitability for smaller organizations with few products. |
| Geographic | Departments are organized by their location along geographic lines, such as by region (Europe, Asia, Northeastern U.S.). Geographic departmentalization is usually used by multinational corporations. | Ensures that goals and visions are aligned with the political, social, and cultural needs of a region; provides opportunities for upper level management training where expertise and specialization is needed; better addressment of regional issues. | Isolation between departments due to distance or differences in political, social, or cultural needs; potential for conflict or competition between regional managers; duplication of functions within departments or between departments. |
| Customer or market | Departments are organized according to customer types, such as by the needs of consumer, business, and government clients. Each type of customer typically has different needs. | Allows employees to specialize in developing products to serve the needs of a specific client, class, or market; the needs of customers can be met or addressed more directly; the organization may maintain a closer relationship with clients. | Limits the view of organizational goals such as growth overall; may lead to the duplication of similar functions within a department or organization; may lead to the under-utilization of facilities, resources, or the abiltiies of workers. |
As suggested through the advantages and disadvantages of each form of departmentalization, different fields or businesses may require a different type of departmentalization for the organization to realize its objectives as quickly and effectively as possible. The following sections will explore scenarios in which each type of departmentalization can be applied most logically and how the type of departmentalization plays a role in the success of the organization.
Examples of Functional Departmentalization
Functional departmentalization requires that certain tasks and skills be arranged according to their roles within the organization. This system works especially well for smaller businesses because of its simplicity, in addition to the fact that many small businesses may not have many different products, geographic offices, or a large diversity of clients. For example, a popular bakery in a small town may be very successful, but they would not require a number of regional branches. To most effectively provide their community with baked goods, the organizational structure may utilize functional departmentalization to create a production (baking) department, a sales department, and a marketing department within the business.
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Examples of Product Departmentalization
Product departmentalization is used most often by larger businesses and businesses that produce distinctly different products and services. Differentiating departments by products is helpful in managing the output and impact of a specific item on the market, rather than measuring the progress of individuals with similar skills such as financing or production. If a personal care business is known for making products such as shampoos, conditioners, makeup, and skin care items, they may choose to utilize product departmentalization to analyze how each product line performs in a retail market. Similarly, stores may differentiate departments based on types of products, including home, beauty, technology, and grocery departments.
Examples of Geographic Departmentalization
Massive or multinational businesses are best structured when they utilize geographic departmentalization, or the division of labor according to geographic regions. Geographic departmentalization allows a company to more effectively give customers what they desire, meaning that a better business relationship can be formed. For example, McDonalds and other fast food chains maintain restaurant locations around the globe, but the menu in each region may differ slightly to fit cultural norms or political and religious standards. Travel agencies, conversely, may differentiate by region to simplify the scope of operations within a certain part of a single country or continent.
Examples of Customer Departmentalization
When businesses use customer departmentalization, they organize their labor or products in relation to a specific type of customer or clientele. This type of system works well for businesses that have a wide range of clients, such as the average consumer or a government organization. Retail clothing stores often organize their merchandise in specific departments according to gender, including through men's, women's, and children's departments. Other retailers may organize their products individually or in bulk (as seen in a wholesale clue or warehouse store) to deliver a specific type of clientele the most appropriate experience for their needs.
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In some instances, businesses may choose to implement more than one type of departmentalization in order to analyze their processes from multiple perspectives. This matrix departmentalization style combines one departmentalization type with another in order to receive the benefits of both. For example, if a large organization used both product departmentalization and customer departmentalization, they would be able to better determine how many products are being sold, identify to whom they are being sold to, and better plan how their products should be displayed to reach an even larger group of potential clients.
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Matrix departmentalization is advantageous to larger companies and multinational corporations, especially those with many products, offices, or types of customers. They are able to make more concrete and realistic decisions when factors are measured from different perspectives, and they are also able to grow the specializations within the business to adapt to change more easily. Matrix departmentalization may be presented as having limitations, however, because it can potentially lead to confusion of multiple managers and employees when too many systems of accomplishing tasks exist. Further, employees may experience an increase in workload as responsibilities shift through an ununified chain of command.
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Departmentalization is a method of organizational structuring that pertains to the division of similar processes, tasks, skills, or specializations into smaller departments within a company. It is advantageous when applied to many business settings because it involves developing departmental personnel expertise, allows for a tighter control of where assignments are delegated, and can simplify operations to increase organizational efficiency. Departmentalization can sometimes be disadvantageous, however, due to less adaptability towards change, an increase in bureaucratic decision-making and competition between departments, and a potential lack of effective communication.
There is more than one way to organize a business into departments. Functional departmentalization groups similar employee skillsets and roles within an organization together to create departments such as marketing, sales, and production. It is best applied to smaller businesses for its simplicity. Product departmentalization is used by larger companies or businesses with many products to most effectively measure the output and impact of a certain item on the market. Multinational corporations utilize geographic departmentalization to establish offices grouped by location. This method allows the company to fulfill the needs of their clients politically, socially, and culturally. Customer (market) departmentalization may be used by a business that provides products to the government, businesses and individuals. Matrix departmentalization is being used when two or more forms of departmentalization are in use.
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Video Transcript
What is Departmentalization?
Departmentalization involves dividing an organization into different departments, which perform tasks according to the departments' specializations in the organization. Departmentalization as a means of structuring an organization can be found in both public and private organizations. An organization can structure itself into departments in the following ways.
Functional Departmentalization
In functional departmentalization, an organization is organized into departments based upon the respective functions each performs for the organization. For example, a manufacturing company may create a production department, sales and marketing department, an accounting department, and a human resources department. Functional departmentalization may be advantageous because it can increase efficiency and expertise since all related activities are performed in one place by one group of people that specialize in that activity.
Geographic Departmentalization
In geographic departmentalization, an organization is organized along geographic lines. This is often a good idea for large multinational firms with offices around the world. All activities related to the organization's activities in each region are handled by a department in that region. One advantage of this method is that it ensures the development of expertise specific to the political, social, and cultural needs of the region. Moreover, sending managers to work in each region provides excellent training for upper level management positions where a broad perspective is required for success.
Product Departmentalization
In product departmentalization, an organization is divided by product lines. It creates a department for each product and that department controls all activities related to the product including development, production, marketing, sales, and distribution. This structure provides the organization the advantage of developing personnel with a high level of expertise and specialization for each of its products.
Customer/Market Departmentalization
Finally, we have customer/market departmentalization. Each type of customer usually has different needs, and organizations often departmentalize along different customer types, such as consumers, businesses, and governments. For example, think about an aerospace engineering firm and the different needs of their consumer, business, and government clients. This structure may be advantageous because it allows its personnel to specialize in developing products and serving the needs of particular markets and classes of customers.
Lesson Summary
Departmentalization is a method of dividing an organization into different departments, which performs certain tasks in accordance with the department's specialization. Organizations can departmentalize along functional, geographic, product, and customer/market lines. Each method of departmentalization has its own distinct advantages based upon its personnel developing specializations related to the manner in which the organization is departmentalized.
Learning Outcomes
Once you are finished, you should be able to:
- Explain what departmentalization is
- Discuss the four ways an organization can departmentalize itself
- Recall the advantages for each departmentalization method
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Departmentalization | Types, Advantages & Disadvantages
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