State Bases Of Departmentation & Also Mention it's Advantages & Disadvantages.

Followings are the bases used for the departmentation of the business enterprises.



The most common form of grouping activities prevalent almost in every enterprise is the functional departmentation. The word function refers to the principal activities of an enterprise. It may be defined as any task involved in the performance of activities of an enterprise that can be clearly distinguished from any other task. In a manufacturing organisation, the important functions are production, sales, finance, and personnel.

Functional departmentation may also be carried out at the lower levels of the organisation. For example, activities in the marketing department may be classified and grouped into marketing research, sales and advertising. In other words, the process of functional differentiation may take place through successive levels in the hierarchy. The process can continue as long as there exists a sound base for further differentiation.

In the following figure this has been divided in to Production, Marketing and Finance, function



Production Manager

Marketing Manager

Finance Manager


Advantages of functional departmentation: The advantages of functional departmentation are as follows:

i)      It is the most logical and natural form of departmentation.

ii)    It brings about specialisation which ensures optimum utilisation of manpower and other resources.

iii)   It lays emphasis on each and every activity. Every department makes its contribution to the organisation’s objectives.

iv)   It facilitates delegation of authority and thus reduces the burden of the chief executive.

v)    Specialists can be employed to perform various activities requiring specialised knowledge.


Disadvantages of functional departmentation: The disadvantages of functional departmentation are as follow:

i)      There is too much emphasis on specialisation which hampers the broadening of outlook of various people. This might also discourage the organisation. They may think that they are insignificant parts of the total organisation.

ii)    There may be conflicts between different departments. For instance, delivery dates promised by the sales department may not be honoured by the production department.

iii)   There may be difficulties in coordination and control of the activities of different departments.

iv)   Functional specialisation may reduce costs through higher efficiency but such saving may not be sufficient to compensate for increased expenses resulting through departmentation. Managers may try to build their functional empires.



In the case of product departmentation, departments are created on the basis of products. Each department is known as a Division. Product departmentation is useful when product expansion and diversification, and the engineering, manufacturing and marketing characteristics of the product are of primary concern. Under the product diversification, all activities related to a product line are grouped together under the direction of semi-autonomous divisional manager. The divisional manager has the authority to develop the product according to the nature of demand in the market. It is used when the product is relatively complex and a great deal of capital is required for  plant and equipment such as in automobile and electronic industries. For instance, a big company may have metal division, chemical division and plastic division, as shown in the following figure.


Board of Director


Managing Director













Plastic Division

Metals Division

Chemicals Division












Advantages of product departmentation : Following are the advantages of product departmentation:

i)      Product departmentation reduces the coordination problems which are created under functional departmentation. There is integration of activities relating to a particular line of product. It facilitates product expansion and diversification.

ii)    It focuses attention on each product line.

iii)   It leads to specialisation of physical facilities on the basis of products which results in economy.

iv)   It is easier to evaluate and compare the performance of various product divisions.

v)     It keeps problems of production isolated from those of others.


Disadvantages of product departmentation : The disadvantages of product departmentation are given below :

i)      There is duplication of physical facilities and many functions. Each products division maintains its separate facilities and functional personnel.

ii)    Advantages of centralisation of certain activities like accounting, financing, marketing, etc., cannot be achieved.

iii)   There may be under-utilisation of plant capacity if the demand of product is not sufficient.

iv)   It may be difficult for a company to adapt itself to certain changes in demand technology, etc.



Departmentation by territory takes place when a company is organised into a number of divisions located in different areas. It is also known as geographical departmentation. Territorial departmentation is specially useful for banks, insurance companies, transport companies, etc. They can divide their activities into zones, divisions and branches. For instance, Life Insurance Corporation of India has followed territorial departmentation in the organisation of its activities. The organisation chart of Life Insurance Corporation is given below :


Head Office











New Delhi


















Advantages of territorial departmentation: The advantages of territorial departmentation are as follow:

i)      It helps in achieving the benefits of local operations. The local managers are most conversant with their needs and those of their customers. They can adapt to the local situation with speed and accuracy.

ii)    A marketing division can meet local demands more effectively.

iii)   There is better coordination of activities in a locality through the setting of a regional division.

iv)   It facilitates the expansion of business in various regions.

v)     It is beneficial from the point of view of country’s economic development.


Disadvantages of territorial departmentation: The disadvantages of territorial departmentation are as follows :

i)      There is duplication of physical facilities. It leads to uneconomical operations.

ii)    There may be problem of integration between various regional offices.

iii)   There may be lack of talented personnel to take charge of regional departments.

iv)   There will also be problems in providing centralised services to various departments which are located in different regions.



Under this basis of departmentation, separate departments are created to serve

the needs of particular customers. Such an organisation helps managers to satisfy

the customer’s requirement more conveniently and successfully. A marketing organisation may group its activities according to the classes of customers served by it, depending on their volume of demand, languages and liking. For example,

a departmental store may have childrens department, ladies department, gents

department, each catering to the various requirements of different classes of

customers. Another organisation may organise its marketing activities into

wholesale, retail and export as shown below.


General Manager




















Advantages of customer departmentation: The advantages are as follow:

i)      An organisation can consider the needs of baffling variety of customers.

ii)    Such organisation can concentrate on clearly identified and potential customers.

iii)   It is easier to develop rapport with attractive and resourceful customers.

iv)   It is highly useful in customer-oriented organisation.


Disadvantages of customer departmentation: The disadvantages are as follow:

i)      It is almost impossible to consider all the customers, their interests, habits and customs.

ii)    Departmentation by customer leaves coordination problems between sales personnel and production people.

iii)   Organisation may discriminate between rich and poor customers.


Process or Equipment

Under this departmentation, activities are grouped on the basis of various manufacturing processes. In this process, similar types of labour and equipment are brought together. A manufacturing enterprise may departmentalise its activities on the basis of production process of equipment involved. For example, a textile organisation may organise its departments into spinning, weaving, calendaring and dyeing as shown below. Similarly, a printing press may consist of composing, proof-reading, printing and binding departments. This type of departmentation may also be followed in engineering and oil industries. The justification of a separate department around equipment is that it is not always possible to install a costly equipment in every department which needs its use. Moreover, skilled personnel are required to operate the equipment.


General Manager












Advantages of process departmentation: The advantages are as follow:

i)      This departmentation is very helpful when machines or equipment used require special operating skills.

ii)    It enables the organisation to gain the advantages of specialisation, optimum maintenance of equipment and resources.

iii)   It is better suited to manufacturing companies.


Disadvantages of process departmentation: The disadvantages are as follow:

i)      Departmentation by process makes coordination of various functions and products difficult.

ii)    It results in conflicts between different managers at different levels.

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