February 2, 2015

Departmentation in Organizations - Review Notes

Departmentation by numbers
This simple-numbers method of departmentizing is useful to place undifferentiated persons under supervisors for managing them.


Departmentation by enterprise function

Henri Fayol identified technical, commercial, accounting, financial, security as five important activities and he added management as the sixth activities. Departments in organizations can be created based on the functions carried out by organizations. While functional departments are created under CEO, each functional department is further divided as needed into derivative functional departments to facilitate management following the span of control principle.

Departmentation by territory or geography
Departmentation by territory or geography is a commonly used method for physically dispersed enterprises. Sales departments used this method and Internal Revenue Service uses this method.

Departmentation by customer categories
The special and widely varied needs of customers for clearly defined service impel suppliers to departmentize on this basis.

Departmentation by process or equipment
In production function, this basis of departmentation is used.

Departmentation by product
The grouping of activities on the basis of product or product lines is steadily growing in importance in multiline large scale-enterprises.

Matrix organization
Matrix organization combines functional and project or product patterns in the same organization structure. In this structure, there are functional departments which have a functional manager, but members of the department are deputed to various projects or product groups. This form is common in engineering and research and development organizations or departments.

Strategic business units (SBUs)
SBUs are distinct businesses set up as units in a larger company to ensure that certain products or product lines are promoted and handled as though each were an independent business. To be called an SBU, the business unit must have its own mission, definable groupsof competition, have an integrated plan and budget, and manage its own resources in key areas. Each SBU is entrusted to a manager with the responsibility of guiding and promoting the product from the research laboratory through product engineering, market research, production, packaging, marketing, and he is responsible for the profit of the SBU.

While each form has its advantages and disadvantages, managers have to select the department for the situation based on the jobs to be done, ways in which it is done, the people involved and their personalities etc.

Mixing Types of Departmentation

The authors mentioned cases where different departments in an organization are organized in various forms. Even within a functional department like marketing, some activities may have territory based departmentation and some may have customer category departmentation.


Updated  2 Feb 2015,  6 Jan 2014, 12 Dec 2011

MBA Core Management Knowledge - One Year Revision Schedule

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