>> HR Glossary/  Organizational Development / Departmentalization

What is departmentalization?

Departmentalization, also referred to as departmentation, is the process of grouping teams or activities into departments or functions with specific objectives, goals, and outcomes to be achieved. It is a way of dividing an organization into separate parts (departments), each with its functions and responsibilities but all geared towards achieving the organization's overall goals.

Every employee in a department either performs similar tasks and shares a common goal or works within a multidisciplinary department with varied skills. Coordination among these employees is important, as is the ability to hold employees accountable for their actions.

Why do organizations need departmentalization?

At its core, departmentalization is dividing an organization into smaller, manageable parts. It helps managers run the organization more effectively and efficiently. There are several objectives of departmentalization, which include:

1. Grouping specialized activities

Departmentalization groups together employees who have specialized skills, knowledge, or tasks. Every employee in the department is tasked with defined duties and responsibilities. This grouping makes it easier for managers to assign tasks, coordinate activities, and supervise employees. It also allows managers to delegate authority more effectively.

2. Improving communication and coordination

Efficient communication and coordination are essential for any organization, regardless of its size. They allow managers to delegate tasks, give instructions, and provide feedback. They also allow employees to share information, resolve conflicts, and collaborate on projects.

Departmentalization helps improve these two critical aspects by grouping employees who share common tasks, functions, or skills or with varied skills in a multidisciplinary team. It also establishes a clear chain of command. Every employee in the department knows who their immediate supervisor is. This clear hierarchy makes it easier for managers to communicate with their subordinates and vice versa.

2. Establishing decision-making authority within the organization

Every organization has a certain degree of complexity. As the organization grows, so does its complexity. This growth can make it difficult for managers to control all the employees and activities within the organization.

Departmentalization helps managers maintain control by grouping employees into departments. This grouping makes it easier for managers to oversee the activities of their subordinates. It also allows managers to delegate authority more effectively and hold employees accountable for their actions.

4. Improving efficiency and productivity

Placing employees with similar skills, tasks, and knowledge in the same department can improve efficiency and productivity. Employees can share resources, knowledge, and expertise to collaborate on projects. This collaboration can lead to the development of new and innovative products or processes.

Departmentalization also allows managers to better utilize the talents and skills of their employees. By grouping employees with similar skills, managers can assign tasks that are better suited to their abilities. This helps improve employee morale and motivation.

5. Establishing responsibilities and improving accountability

During departmentalization, each department decides which tasks will be performed. This decision-making process helps establish responsibility and accountability within the organization. 

Every employee within a department has a set of tasks or activities they are responsible for. This makes it easier for managers to reward and recognize employee efforts and outcomes.

What are the major forms of departmentalization?

There are five main types of departmentalization, each with its own unique characteristics. The type of departmentalization used by an organization depends on its size, industry, and business model, while the criteria that are established are important to guide the grouping of activities into the various departments.

Types of Departmentalization
Image inspiration

1. Functional departmentalization

Functional departmentalization is the most common type of departmentalization. It groups together employees based on the functions they perform. The most common functional departments are finance, marketing, logistics, human resources, and operations. 

Since all activities are similar in nature, a functional department often has the opportunity to optimize efficiencies given the similar nature of the tasks performed.

2. Geographic departmentalization

When an organization groups its employees based on the territory or geography they cover, it uses geographic departmentalization. This is common in organizations with widespread operations, such as retail chain stores, fast food restaurants, and banks. It helps managers effectively communicate with employees across different time zones and cultures.

3. Product departmentalization

Product departmentalization groups together employees based on all activities related to developing, manufacturing, and delivering a product. This type of departmentalization ensures specialized knowledge and expertise in each product line.

4. Customer/market departmentalization

Customer/market departmentalization is common in organizations that produce products or services for specific markets or customers. It helps managers better understand the needs and wants of their target market. Customer/market departmentalization is used when there is a great emphasis on efficient customer service and satisfaction.

5. Process departmentalization

Process departmentalization is when an organization groups its activities by the production process. This is common in manufacturing and production companies where there is a need for coordination between different processes. Process departmentalization helps managers effectively monitor and control the product or service quality.

What to consider when departmentalizing

While departmentalization can offer many benefits to an organization, there are also a few things to consider before implementation. The goal is to achieve the right balance of coordination and control while maximizing productivity.

  • Specialization: For maximum efficiency and productivity, it's essential for specializations to be grouped intentionally.  If an organization places different specializations together, it, therefore, should be done with a specific reason or purpose.
  • Coordination: Activities have different levels of urgency and importance. When departmentalizing, it's essential to consider how different departments will coordinate with each other to avoid overlap and duplication of effort.
  • Clear decision-making: There needs to be a balance between too much and too little control. Too much control can stifle creativity and innovation, while too little can lead to chaos. The goal is to find a happy medium that allows employees the freedom to be creative and productive.

The limitations of departmentalizing

Although there are many benefits of departmentalizing, it is also not without its limits. Departmentalization can: 

  1. Create siloes if not well managed
  2. Result in ‘red tape’ if the process is not clearly defined 
  3. Stifle creativity and collaboration
  4. Work better only within certain types of cultures.
Go to Top