DEPARTMENTALIZATION:Departmentalization by Enterprise Function, Departments by Product

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Introduction To Public AdministrationMGT111

LESSON 15

DEPARTMENTALIZATION

At the end of the lecture the students should be able to understand:

What is Department

What are the Basis of Departmentalization

Advantages and Disadvantages of various types of Departmentalization

The Concept of Authority and Decentralization

Department

Let us go back to the definition of department.

"A department is a distinct area, division, or branch of organization over which manager has

authority for performance of specified activities"

When activities and tasks are grouped according to some basis of similarity, it is called

departmentalization.

Departmentalization by simple numbers

Departmentalization by number is done by putting people in group who are to perform the same

duties. They are placed under supervision of a manager or supervisors. Example: Armies in old times,

Unskilled labour in construction.

Departmentalization by time

Departmentalization by time is done at operational or lower levels of organizations where activities

are grouped together on the basis of time. Example: People working in shifts in steel company, hospitals

etc.

Advantages

Departmentalization by time has two main advantages; These are:

The usual timings of offices are eight hours, but if departmentalization is to be done

beyond 8 hours, second shift or round the clock service can be provided.

Equipment can be used more often in shifts: The tools, equipment and physical facilities

can be used to full capacity.

Disadvantages

Lack of supervision: People working in shifts may not be supervised.

Increase of overtime rates: There may be increase in expenditure due to payment to

workers in shift.

Departmentalization by Enterprise Function

Departmentalization by function is the grouping of the activities in accordance with the functions

of the enterprise (Functional Departmentalization). Example of functions of organization: Production,

Budgeting, Accounts, Sales etc.

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Departmentalization by Enterprise Function

Figure - 1

President

Assistant to

Personnel Officer

President

Marketing

Engineering

Production

Finance

Department

Marketing

Research

Marketing

Planning

Advertising and

Promotion

Sales

Administration

Sales

In figure 1 is the organization chart (also called organogram) of a private company. The functional

departmentalization of a company is shown. There are 4 functional departments i.e. marketing, engineering,

production and finance. Under the marketing department all market related activities are grouped i.e.

marketing research, marketing planning, advertising and promotion, sales and administration.

Departmentalization by function is the most common form of departmentalization.

Advantages of Departmentalization by Function

Following are the advantages of departmentalization by function:

It is logical reflection of functions: This is more common and logical way of grouping

activities.

Maintains power of major functions: Certain functions in organization are more important

as the main or core area. For example in universities the academic department will be major

function.

Simplifies training: Since people are grouped according to functional departmentalization, it

becomes easier to provide training to employees in a particular functional area wise.

Tight control on the top: Each department head can exercise control over its own functional

area.

Disadvantages of Departmentalization by Function

Following are disadvantages of departmentalization by functions:

Reduces coordination among functions: Since employees work in respective department;

therefore, coordination amongst various department is reduced.

Slow adaptation to changing environment: When people work for longtime in a department

they become use to with the working and their styles become rigid. For example a police

Introduction To Public AdministrationMGT111

officer style of working would be different from that of a teacher. Therefore, they are slow to

changing environment.

Limits development of managers: Development of mangers is limited to a particular function

only.

Departmentalization by Geography

Activities of an organization in a given area or territory are grouped and assigned to a manager.

Example: Electricity and gas is supplied by regional organizations, such as local electricity Supply

Corporation, Sui Northern Gas Company and Sui Southern Gas Company.

Departmentalization by Geography

Figure-2

President

Marketing

Personnel

Purchasing

Finance

Western

Southwestern

Central

Southeastern

Eastern

Region

Personnel

Engineering

Production

Accounting

Sales

Figure 2 is the organization chart of an organization that has centralized marketing, personnel,

purchasing and finance. Under the central region are shown personnel engineering, production, accounting

and sales, and likewise these functions also exist for other four geographical regions.

Advantages

Following are the advantages of departmentalization on the basis of geography:

Emphasis on local market: The local markets can gain benefit as service is provided

according to geography. It helps develop that market.

Improves coordination: Coordination within the geographical unit is better because all

functional departments operate at the geographic region.

Face-to-face communication: There is better communication between the service

provider and service receiver.

Disadvantages

Following are the disadvantages of departmentalization by the geography:

Introduction To Public AdministrationMGT111

Problems of control: As the functions are dispersed, therefore control cannot be

exercised effectively

Requires more human capital: from the above it is deduced that more people are

required.

Makes maintenance more difficult: Maintenance of service become difficult.

Customer Departmentalization

It is grouping of activities so that these reflect primary interest of the customers in a variety of

enterprises.

Customer Departmentalization

Figure-3

President

Community-

Corporate

City Banking

Banking

Instructional

Real Estate

Agricultural

Banking

Loans

Banking

Customer departmentalization is usually found in banking sector but there could be other

organizations that may have customer departmentalization. In figure-3 customer departmentalization is

shown. In the figure the bank has grouped banking activities according to the types of loans that will be

acquired by specific type of customer e.g., agricultural banking department will provide loans to farmers.

Real estate loans will be provided to customers who plan to buy property. Institutional banking will deal

with institutional customers.

Advantages

1. Encourages concentration on customer needs

2. The focus is on customer satisfaction

3. The staff develops expertise in customer area.

Disadvantages

1. Since everybody works in respective area coordination becomes difficult

2. There is underutilization of facilities and labour-specialized workers in customer groups

Departments by Product

Grouping of activities on the basis of the products or the product lines of an organization is known

as departmentalization by production or product. Some times organization may be producing more than

one product or services. For example a firm may be producing soaps, detergents, toothpaste etc. So for each

product it would have separate department. In the organization chart in figure 4 the organization has three

separate services like punch-press, welding and electroplating.

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Department by Production

Figure 4

President

Engineering

Production

Marketing

Finance

Personnel

Punch -

Welding

Electroplating

Presses

Matrix Organizations

It is the combination of functional and project or product patterns of departmentalization in the

same organization structure

Matrix Organization

Figure 5

Director

Preliminary

Mechanical

Electrical

Hydraulic

Metallurgical

Design Chief

Engineer Chief

Project `A' Manager

Project `B' Manager

Project `C' Manager

As shown in the figure 5 which shows matrix organization in engineering department, there are

functional managers in charge of engineering functions and an overlap of project managers responsible for

the end product. This form of organization is common in research and engineering organization it has been

used in product marketing organizations as well.

PROBLEMS WITH MATRIX MANAGEMENT

Let us summarize some typical problems in matrix structure. These are:

1. A state of conflict exists between functional and product managers as both compete for limited

sources (for example financial and human).

2. There is conflict of roles and ambiguity because there is overlap of functions.

3. There is imbalance of authority and power as well as horizontal and vertical influence of the project

and functional managers which can lead to problem in matrix organization.

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4. Because of potential conflict, managers may want to protect themselves against blames by putting

everything in writing which increases administrative cost.

5. Matrix organization require many time consuming meetings

Concepts

Departmentalization:

grouping of activities according to some specific

activities over which manager has authority

Departmentalization by function:

grouping of activities by functions

Departmentalization by geography:

Activities of an organization in a given area or

territory are grouped and assigned to a manager

Departmentalization by customer:

It is grouping of activities so that these reflect

primary interest of the customers.

Matrix organizations:

It is the combination of functional and project or

product patterns.

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