Departmentation is the foundation of organisation structure, that is, organisation structure depends upon Departmentation. Departmentation means division of work into smaller units and their re-grouping into bigger units (departments) on the basis of similarity of features.
As the organisation grows in size, the work is divided into units and sub-units. Departments are created and activities of similar nature are grouped in one unit. Each department is headed by a person known as departmental manager.
Departmentation, thus, helps in expanding an organisation and also promotes efficiency by dividing the work on the basis of specialisation of activities and appointing people in various departments on the basis of their specialised knowledge.
Importance of Departmentation:
1. Organisation structure:
Division of work into units and sub-units creates departments. Supervisors and managers are appointed to manage these departments. People are placed in different departments according to their specialised skills. The departmental heads ensure efficient functioning of their departments within the broad principles of organisation (scalar chain, unity of command, unity of direction etc.).
Thus, organisation structure is facilitated through departmentation. If there are no departments, it will be difficult to keep track of who is doing what and who is accountable to whom.
Departmentation creates departments, assigns tasks to people, fixes their responsibility and accountability to their departmental heads, creates a span of management so that work can be easily supervised. This network of authority- responsibility relationships is the basis of designing a sound organisation structure.
In large organisations, one person cannot look after all the managerial functions (planning, organising etc.) for all the departments. He cannot adapt the organisation to its internal and external environment. Such an organisation would become an inflexible organisation. Creating departments and departmental heads makes an organisation flexible and adaptive to environment. Environmental changes can be incorporated which strengthen the organisation’s competitiveness in the market.
Division of work into departments leads to specialisation as people of one department perform activities related to that department only. They focus on a narrow set of activities and repeatedly performing the same task increases their ability to perform more speedily and efficiently. Specialisation promotes efficiency, lowers the cost of production and makes the products competitive.
4. Sharing of resources:
If there are no departments, organisational resources; physical, financial and human, will be commonly shared by different work units. Departmentation helps in sharing resources according to departmental needs. Priorities are set and resources are allocated according to the need, importance and urgency regarding their use by different departments.
“The organisation is a system of integrated parts, and to give undue emphasis to any functional part at the expense of the entire organisation creates organisational islands, thus, resulting in inefficiency and significant behavioural problems”. Creating departments focuses on departmental activities and facilitates co-ordination.
Managers cannot control organisational activities if they have to be collectively supervised. Departmentation facilitates control by departmental manager over the activities of his department only. Activities are divided into smaller segments, standards of performance can be framed, factors affecting performance can be identified and control can be more objective in nature.
Flow of work from one level to another and for every department, i.e., vertical and horizontal flow of work in the organisation increases organisational efficiency.
8. Scope for Growth and Diversification:
In the absence of departmentation, managers can supervise a limited number of activities, depending upon their skills and abilities. Departmentation enables them to expand their area of operation into new product lines and geographical divisions. Departmentation provides scope for organisational growth (along the same product lines) and expansion (adding new product lines).
Since similar activities are grouped in one department headed by departmental managers, it becomes easy for top managers to fix responsibility of respective managers for achieving the desired results. If planned performance is not achieved, the department responsible becomes answerable. When responsibility is clear, authority can also be delegated to managers. Clear identification of responsibility and authority increases efficiency of the departmental activities.
10. Development of Managers:
Departmentation enables departmental heads to be creative in making decisions with respect to their departmental activities. Training needs can also be identified because manager’s task is clear and specific. There are opportunities to improve performance in their area of specialisation.
This develops their potential to be promoted to higher managerial positions in the organisation. It also facilitates recruitment and selection of top managers from within the organisation rather than depending on outside sources.
Basis of Departmentation:
The form of organisation structure depends upon the basis of departmentation. Creating departments and sub-dividing the work of departments into smaller units creates organisation structure. With growing size of organisations, departments are created for activities of similar nature.
There are two broad forms of departmentation:
- Functional departmentation, and
- Divisional departmentation.
a. Functional Departmentation:
Functional organisation creates departments along activities or functions of the undertaking (functions do not refer to managerial functions of planning, organising , staffing, directing and controlling). It is grouping of activities on the basis of similarities of functions.
The nature of activities performed by different organisations is different. For example, activities carried by a manufacturing organisation are production, finance, personnel and sales. For a trader, the major activities are buying and selling, a bank performs borrowing and lending functions. Functional departmentation is, “the grouping of jobs and resources within the company in such a way that employees who perform the same or similar activities are in the same department”.
It is the simplest, logical and most widely accepted form of creating departments. It is suitable for organisations where limited number of products are produced. The major functional departments further have derivative departments. Production department, for example, has sub-departments to manage purchase, production planning and control, manufacturing etc. Finance department creates departments to look into capital budgeting (fixed assets) and current assets, cash management and budgets.
Personnel department has sub-departments to take care of appointments, training, placement and promotion of employees. These sub-departments can be further sub-divided if needed. Advertising department (sub-department of marketing department), for example, can further have sub-departments like advertising in Newspapers, Radio, TV etc.
Merits of Functional Departmentation:
- Simple and logical basis of creating departments:
Production, marketing, finance and personnel are widely accepted and recognised functions of a manufacturing organisation and, therefore, it is a simple basis of departmentation.
Since workers in one functional area focus on that area only, they acquire expertise and specialised skills in performing their duties. This offers the benefits of specialisation; efficiency and speed.
People working in one department are closely knitted and work collectively towards achievement of departmental goals. The departmental manager can co-ordinate various derivative activities.
- Training and control:
The departmental manager is accountable for functions performed by his department. He ensures that activities are performed strictly according to rules and procedures laid down for the department. He can, thus, exercise control over his departmental activities. If workers are not able to carry out the activities efficiently, managers can train them to do so.
It is easy for managers to supervise the departmental activities as they have to supervise a narrow set of functional skills.
- Suitable for stable organisations:
Organisations which do not frequently change their work units and work force are suitable for creating departments on the basis of functional activities.
- Suitable for small organisations:
This basis of departmentation is suitable for small sized organisations which produce a limited line of products. Even for large organisations, it is suitable only for top levels. Thereafter, some other basis of departmentation has to be used. Marketing department, for instance, can be further branched out on the basis of territorial or geographical departmentation.
Merits of Product Departmentation:
(i) Better performance:
One manager may not have skills to carry out all operations for different product lines. By creating departments where each product department looks after one product or product line only, decision-making, fixing responsibilities and assessment of performance can be done efficiently. Sales people for one product will concentrate on sales promotion of that product only. This ensures better performance of employees of each department.
Firms operating in the dynamic environment are well suited for this form of departmentation as it helps them respond to environmental changes, analyse competitors’ products and change their product line, if necessary. The focus is completely on one product and all functional activities related to that product rather than one functional activity related to all products. This promotes product specialisation which helps in product growth.
(iii) Fast decisions:
Since all decisions related to a product are taken by product manager (under the guidance of General Managers of different functional areas), decisions are taken quickly.
All the primary and auxiliary activities are managed by one manager. He can co-ordinate the efforts of people working under him.
Every product manager wants to maximise profits of his product, for which he delegates authority to people of his department and establishes authority-responsibility relationships amongst them. Subordinates are trained to carry out functions related to each product. He, thus, controls activities of his department to ensure that the product contributes to the organisational goals.
Product managers are accountable for results of their product departments. This promotes performance and profitability of different product departments.
The costs and revenues of all the products can be compared. This helps in eliminating the unprofitable products and promoting the profitable ones thereby increasing organisational efficiency.