Departmentalization: Bases of Departmentalization

Meaning and Definition of Departmentalization

Departmentalization refers to a process of grouping two or more jobs into various groups. It is one of the essential processes of an organization. The prime objective of departmentalization is to divide the overall activities of an organization into various functional and sub-functions, creating a department on the basis of similarity or dissimilarity of functions, and thereafter assigning people and processes into various departments, as per their functionalities. The resources are so allocated in a department that they from an independent unit of work.

According to Louis Allen___” Departmentation is a means of dividing the large and monolithic functional organization into smaller flexible administrative units“.

According to Koonts and O’Donnell___” A department is a distinct area, division or branch of an enterprise over which a manager has authority for the performance of specified activities”.

Departmentation strive to provide a smooth flow of business operations in an efficient manner by categorizing the activities and dividing the authority, responsibility, and accountability.

Bases of Departmentalization

  • Departmentation by Functions: In this system, activities planned to be performed are grouped together as per their functions. For instance, the fundamental functions in a manufacturing organization include production, finance, marketing, etc. In a wholesale business, the grouping can be done on the basis of buying, selling, finance, etc.

Functional Departmentalization

  • Departmentation by Products: In this pattern of departmentalization, for each major product manufactured by the company, an independent unit consisting of all the departments is created. Such departments include production, human resources, marketing, sales, etc.

product departmentalization

  • Territory Departmentation: Departmentation by territory divides the organization on the basis of geographic region. It classifies the organization activities in different groups according to territory or region. It is suitable for those organizations where similar jobs are performed in different units.


  • Departmentation by Customer or Service: In departmentalization by customer or service, various departments on the basis of different customer groups are designed. This structure is suitable for those organizations which serve diverse customer groups.
  • Departmentation by Process or Activity: Departmentation by process or activity is used in product oriented industries. In the product-oriented firms, production of goods takes place in different stages, where each department is allocated for different stages of the process. Here, the output of one department becomes the input for another department.

Departmentation by Process