The Nature and Purpose of

Departmentalization
By Group – P1 (SEC - 3)
Submitted to : Prof. Ramakrishna Chadaga
ORGANIZATION
An ORGANIZATION is a tool used by people to coordinate their actions to obtain
something they desire or value.

The purpose of an organization structure:

The purpose of Organization Structure is to incorporate verifiable objectives, which are a major
part of the planning. It also helps in giving a clear idea of the major duties or activities involved.
Another function of Organizational Structure I to help in understanding the areas of discretion
and authority, so that each and every individual knows what he or she can do to accomplish the
goal.
An organization structure should be designed to clarify who is to do what tasks and who is
responsible for what results, to remove the obstacles in performance caused by confusion and
uncertainty of assignment, and to furnish decision-making and communication networks
reflecting and supporting the enterprise objective.
Organization implies, “a formalized intentional structure of roles or positions”.

The concept of organizing:

Organizing is the way in which most people establish an “intentional structure of roles” i.e. An
Organization.

It involves the following steps:

1) The identification and classification of required activities.

2) The grouping of activities necessary for attaining the objectives.
3) The assignment of each grouping to a manager with the authority necessary to supervise
it.
4) The provision for co-ordination horizontally (on the same organizational level) and
vertically (division and department) in the organization structure.

Formal and Informal Organization:

There are two types of Organizations: Formal Organizations and Informal Organizations.

Formal Organization:

It means the intentional structure of roles in a formally organized enterprise. This does not mean
that it is inherently inflexible or unduly confining, formal organization must be flexible. If a
manager is to organize well, the structure must furnish an environment in which individual
performance, both present and future, contributes most effectively to the group goals.

Informal Organization:

Chester Barnard described informal organization as “Any joint personal activity without a
conscious joint purpose, even though contributing to a joint purpose.”

Thus informal relationships established in a group of people may aid in the achievement of
organizational goals. As it is much easier to ask for help on an organization problem from
someone you know personally, even if he or she may be from a different department, than from
someone you know only as a name in the organization chart.

Keith Davis of Arizona State University described informal organization as, “a network of
personal and social relations not established or required by the formal organization but arising
spontaneously as people associate with one another”.

Organizational Division: The Department

One aspect of organizing is the establishment of departments. The word department designates a
distinct area, division, a branch of an organization over which a manager has authority for the
performance of specified activities. A department, as the term is generally used, may be the
production division, the sales department, the market research section, or the accounts receivable
unit. In some organizations, the bureaucratic structure is replaced by an emphasis on teamwork.

Organizational Levels and the Span of Management

The purpose of organizing is to make human co-operation effective. The reason for levels of
organization is the limitation of the span of management. In other words, organizational levels
exist because there is a limit to the number of people a manager can supervise effectively, even
though this limit may vary depending on the situation.

Choosing the Span

There are two basic spans: Narrow Span and Wide Span. Though there are a various merits and
demerits of narrow span & a wide span, the fact that many well managed companies have a
widely varying of spans shows that no particular span is better than the other, but the choice
depends on the organization in question and its environment.

Narrow Spans: Organizations with narrow span exhibit close supervision, hence, close control
and fast communication between subordinates and supervisors.
The trade-offs of this approach are that the Superiors become too involved in the work of their
subordinates, which might lead to a feeling of interference. Also, this approach leads to several
levels of management, which in turn leads to higher costs and excessive distances between
lowest and top levels.

Wide Spans: Under this approach the supervisors are pressurized to delegate. This leads to a
need for clearer policies and careful selection of subordinates.

Some of the trade-offs include overloaded supervisors who become decision bottlenecks.
Another imminent danger of this approach is loss of control of the supervisor. These factors
make it necessary to have exceptional quality of managers.

Problems with Organizational Levels

Firstly organizational levels are expensive. As they increase, more and more effort and money
are devoted to managing, because of the additional managers, the staffs to assist them, and the
necessity of coordinating departmental activities, plus the cost of facilities for the personnel.
These are called “overheads” in contrast to the direct costs.

Secondly departmental levels complicate communication. An organization with many levels has
greater difficulty communicating objectives, plans, and policies downward trough he
organization structure than does a firm in which the top manager communicates directly with
employees. Omissions and misinterpretations occur as information passes down the line.

Finally, numerous departments and levels complicate planning and control. A plan that may be
definite and complete at the level loses coordination and clarity as it is subdivided at a lower
levels. Control becomes more difficult as more levels and managers are added.

Operational – Management Positions: A Situational Approach

The principle of the span of management states “that there is a limit to the number of
subordinates a manager can effectively supervise, but the exact number will depend on the
impact of the underlying factors”.

Examining what consumes the time of managers in their handling of superior – subordinate
relationship, and ascertaining the devices that can be used to reduce the time pressures, will not
only be a helpful approach to determine the best span in individual cases but also a powerful tool
for finding what can be done to extend the span without destroying effective supervision.

Factors Determining an Effective Span

1. Subordinate Training
The better the training of subordinates, the better they value the time and work of their superiors
and the organization.

2. Clarity of Delegation of Authority

The most serious symptom of poor organization affecting the span of management is inadequate
or unclear authority delegation. If a manager clearly delegates authority to undertake a well-
defined task, well-trained subordinate can get it done with a minimum of the superior’s time and
attention.

3. Clarity of Plans

Most of the tasks and work are planned before which is to be implemented and put into effect. If
the plans are well defined and if the subordinate understands what is expected, little of a
supervisor’s time will be required.

4. Use of Objective Standards

The use of Objective Standards by a manager ensures that a subordinate follows the plan.

5. Rate of Change

The Rate of change of the enterprise is an important determinant of the degree of which policies
can be formulated and the stability of policies maintained.

6. Communication Techniques

The effectiveness with which communication techniques are used also influence the span of the
management. If the plans, objectives, instructions, orders or directions are communicated
effectively, the subordinates are able to understand the job much more effectively.

7. Amount of Personal Contact Needed

In many instances, face to face meetings are necessary. There are so many problems that can be
handled only in face to face meetings.

8. Variation by Organization level

The size of the most effective span differs by organization level.

Organizational Environment for Entrepreneuring and Intrapreneuring

An Intrapreneur is a person who focuses on innovation and creativity and who transforms a
dream or an idea into a profitable venture by operating within the organizational environment. In
contrast, the Entrepreneur is a person who does similar things but outside the organizational
settings.

The managers are responsible for creating an environment for effective and efficient
achievement of group goals. They must promote opportunities for entrepreneurs to utilize their
potential for innovation. Entrepreneurs need some freedom to pursue their ideas, which, in turn,
requires that sufficient authority is delegated.

Innovative persons often have ideas that are contrary to “conventional wisdom”. It is quite
common that these individuals are not well liked by their colleagues and that their contributions
are often not sufficiently appreciated. It is, therefore, not surprising that entrepreneurs leave large
companies and start their own businesses.

The Structure and Process of Organizing

In looking at the organization as a process, there are several fundamentals that should be
considered.

Firstly, the structure must reflect the objectives and plans because activities derive from them.

Secondly, it must replace the authority available to an enterprise’s management.

Thirdly, an organization structure must reflect its environment. It must be designed to work, to
permit contributions by members of a group, and to help people gain objectives efficiently in a
changing future. There is no single organization structure that works best in all kinds of
situations. An effective organization structure depends on the situation.

Fourthly, since the organization is staffed with people, the groupings of activities and the
authority relationships of an organization structure must take into account people’s limitations
and customs.

The Logic of Organizing

There is a fundamental logic to organizing. The organizing process consists of the following six
steps.

1) Establishment of enterprise objectives.

2) Formulation of supporting objectives, policies and plans.
3) Identification and classification of activities necessary to accomplish these.
4) Grouping of these activities in the light of human and material resources available and the
best way of using it.
5) Delegation to the head of each group the authority necessary to perform the activities.
6) Tying the groups together horizontally and vertically, through authority relationships and
information flows.

DEPARTMENTALIZATION

Departmentalization is the grouping of related activities into manageable units to

achieve the objectives of the enterprise in the most efficient and effective manner.

The need for Departmentalization

There are several reasons organizations choose to departmentalize.

The basic reason is that it allows organizations to grow and work more efficiently by achieving
division of labour. As organizations grow in scope, number or geography, it becomes
increasingly difficult, if not impossible to manage the organization as a single undivided entity.
This is where departmentalization comes into the picture. It allows us to divide the management
and working of the organization into specialized groups, which can be linked at a higher level.
This leads to simplification of coordination and in better control.

Traditional Approaches to Departmentalization

Over the years, several approaches to departmentalization have been evolved, each with its own
sets of advantages, disadvantages and areas of application.

While departmentalizing, it is very important to remember that different approaches work for
different organization depending on its structure, market and other factors. Therefore, it is
important to study and understand the organization and its environment before choosing one or
more approaches that might fit to it.

The traditional approaches to departmentalization are described below:

Departmentalization by Simple NUMBERS:

This was one of earliest and simplest form departmentalization which was prevalent among
Tribes, clans, armies etc.

This is achieved by identifying people who perform the same duties and put them under a
manager. The success of the undertaking depends on the number of people involved in it.

The application of this approach is becoming more and more limited with technological
advancement and requirement of more efficient groups with specialised skills. Another factor
working against it is that it functions best only at levels where only human resource power is the
important factor.

Departmentalization by TIME:

This form of departmentalization is generally used in organizations where the operation or

organizational activity is required to be carried on round the clock.

The shift system is an example of this approach. This method at the lower levels of the
organization, including manufacturing operations at the plant level, various security and control
operations.

Examples of organizations to which this approach is applicable are hospitals, police department
which would need to be available for emergency situations round the clock.

Advantages: One of the major advantages of such a system is that it allows the organization to
take advantage of the complete 24 hours. An example of this departmentalization can be seen in
organizations which work with live telecom networks. Here, there has to be someone to monitor
the networks 24X7. Therefore, shift system makes a lot of sense.

Disadvantages: One major drawback of this approach is the difficulty in coordination between
the people working in different teams.

Another problem is the health hazard that it raises. People who work the Night Shifts undergo a
body clock reversal. This leads to problems like stress, disorientation and dissatisfaction.

Departmentalization by ENTERPRISE FUNCTION:

Under this, the activities are grouped according to the various functions of the enterprise, like
Production, Selling, Financing etc. The functions vary from organization to organization,
therefore the terminology usually also varies. The basic terms might also vary because some of
the them might not be so important in the context of that particular organization.
As an example, churches do not have a production department, but that doesn’t mean that they
never produce anything, its just because the production function is such a minor part of the
church organization that its now considered in the Functional Departmentalization.

This is the most widely used departmentalization approach which is used in some form or the
other in almost every organization.

Advantages: It’s logical as it allows the people to get specialized in one specific area. This will
increase efficiency as the people working in the specific area are experts in it.

It reduces the problem of training and management. It also allows for better control and
coordination.

Disadvantages: Sometimes, some other form of departmentalization might be more suitable for
the organization. In such a case, using functional departmentalization wouldn’t be the right
approach to follow. As an example, in a company which is globally diversified, a geographical
departmentalization would make more sense.

Another disadvantage could be lesser interactions and greater barriers between different
departments as the people in each department would develop a limited, department focused view
about thing.

Departmentalization by GEOGRAPHY:
Under this approach, activities are grouped on the basis of region/territory. With the increasing
globalization the world is becoming one big market, as a result, the operations of big companies
are often spread over different geographical regions, possible in different countries, or even
different continents.

In such a scenario, it is feasible to group activities on a regional basis. For example, the
organization structure of Coca-Cola has reflected the company's operation in two broad
geographic areas - the North American sector and the international sector, which includes the
Pacific Rim, the European Community, Northeast Europe, Africa and Latin America groups.

Another industry where this approach is applied on a widespread basis is the IT industry, where
the activities are divided on a region basis in the form of regional delivery centre.

Customer Departmentalization

This involves grouping activities on the basis of common customers or types of customers. Jobs
may be grouped according to the type of customer served by the organization. The assumption is
that customers in each department have a common set of problems and needs that can best be
met by specialists. The sales activities in an office supply firm can be broken down into three
departments that serve retail, wholesale and government.

Customers are the key to the way activities are grouped when each of the different things an
enterprise does is managed by one department head. The industrial sales department of
wholesaler who also sells to retailers is a case in point. Business owners frequently arrange
activities on this basis to cater to the requirements of the defined customers, and educational
institutions offer regular courses to serve different groups of students.

There are difficult decisions to be made in separating some types of customer departments from
product departments. for example in the great central cash markets for agricultural products ,the
loan officers of community banks frequently specialize in fruit, vegetables, or grin even to the
point an individual officer will make loans only on wheat or oranges. This is an example of
customer departmentalization.

Advantages: Customer departmentalization can address the special and widely varied customers
for clearly defined services. The manufacturer who sells to the whole sellers and industrial
buyers frequently can meet their special need for setting up separate departments. Non-Business
groups follow similar practices. The extension service universities such as night schools
divisions are arranged with respect to the subject matter and sometimes instructor to appeal to an
entirely different to the group of students from those who attend the university on a full time day.

Disadvantages: Customer departmentalization is not without certain drawbacks. There is, for
instance the difficulty of coordination between this type of department and those organized on
other bases, with constant pressure from the managers of customer departments for special
treatment.

Another disadvantage is the possibility of underemployment of facilities and labor periods of

specialized workers in customer groups’ i n the periods of recession, some customer groups may
all but disappear, for example, machine tool buyers, in period of expansion. In addition, another
drawback is the unequal development of customer groups and demands in characteristic.

Process or equipment departmentalization

This involves grouping activities on the basis of product or service or customer flow. Because
each process requires different skills, process departmentalization allows homogenous activities
to be categorized. For example, the applicants might need to go through several departments
namely validation, licensing and treasury, before receiving the driver’s license.

Owing to the complexity of tasks and the competitive environment in which organizations
operate, they often use a combination of the above-mentioned methods in departmentalization

Such a basis of departmentalization can be found in paint or electroplating process grouping or

by the arrangement in one plant area of punch press and automatic screw machines .in this kind
of departmentalization peoples and materials are brought together in order to carry out
particular operation

Departmentalization by product.
This involves grouping activities by product line. Tasks can also be grouped according to a
specific product or service, thus placing all activities related to the product or the service under
one manager. Each major product area in the corporation is under the authority of a senior
manager who is specialist in, and is responsible for, everything related to the product line. LA
Gear is an example of company that uses product departmentalization. Its structure is based on
its varied product lines which include women’s footwear, children’s footwear and men’s
footwear. Typically, companies and other enterprises adopting this form were organized by
enterprise functions. With growth of the production managers, sales managers, and engineering
executives, the problem encountered of size

The managerial job became complex, and the span of management limited their ability to
increase the number of immediate subordinate managers. At this point, reorganization on a
product division became necessary. This structure permits top management to delegate to a
division executive authority over the manufacturing ,sales, service and engineering functions
that relate to a given product or product line and exact a considerable degree of profit
responsibility from each of these managers.

Advantages:

Product or product line is an important basis for departmentalization because it facilitates the
use of specialized capital (e.g. A press for molding car bodies). It facilitates a certain type of
coordination, and permits the maximum personal skills and specialized knowledge. For example
the sales effectiveness of a particular person may be most effective when confined to lubricants,
conveyors, or power plants, each of which is sold by an expert thoroughly familiar with product.
If production of an item or closely related item is sufficiently large to employ fully specialized
facilities, strong pressure may come for product departmentalization in order to realize
economic advantages in manufacturing, assembly, or handling. Also this kind of
departmentalization permits growth and diversity of products and services. Also profit
responsibility can be exacted from the product departmentalization managers, where they
supervise the sales, production, engineering, service and other functions they may be held
responsible for certain profit goals. They have responsibility for producing a profit along with
other similar groups and this helps the top managers to evaluate more intelligently the
contribution of each product line to total profit, this provides a measurable training ground for
general managers

Disadvantages:
The disadvantages includes the necessity of having more persons with managerial skills, the
dangers of increased costs through application of central service and staff activities, and
maintaining top management control enterprises that operate product divisions must take care, as
the general motors’ corporations has to place enough decision making and control at the
headquarters level that the entire enterprise does not disintegrate.

Recent trends in decentralization.

Two popular trends today in departmentalization are the increasing use of customer
departmentalization and the use of cross-functional teams. Customer departmentalization helps
manager’s better monitor customers' needs and respond to changes in those needs. For example,
L.L. Bean is organized around seven customer groups. Many other organizations are using this
type of structure as well, as it allows them to better understand their customers and to respond
faster to their needs. Secondly, managers are using cross-functional teams, which are work teams
composed of individuals from various functional specialties. For instance, at Ford's material
planning and logistics division, a cross-functional team with employees from the company's
finance, purchasing, engineering, and quality control areas and with representatives from the
company's outside logistics suppliers has made several work improvement in accounts

MATRIX ORGANIZATION
This kind of departmentalization is matrix or grid organization, or product or project
management. The essence of matrix organization normally is the combining of functional and
product departmentalization in the same organization structure. This form is common in
engineering, research and development and also in product marketing organization.

E.g. Aerospace, in marketing, in the installation of an electronic data-processing system etc.

Need of Matrix Management

In today’s world there is an increasing interest among companies and customers to reach only the
end product. As such there is pressure to establish responsibility for ensuring such end results.
One way to accomplish such could be through traditional product development lines.

But pure project organization may not be feasible for a number of reasons. E.g. the inability of
the project to use certain specialized engineering personnel or the project may be of relatively
short duration or the professionals may not be ready tolerate frequent organization change.
However the reasons for existence of matrix organization in commercial or industrial product
management may be somewhat different.

Variations in Practice
There are many variations of the project or product manager role. One is where the project or
product manager has no authority to tell other department to do anything. Obviously there are
numerous drawbacks to this methods but turnover is none the less very high.

Another variation is practice is to draw a grid or matrix, showing certain managers in charge of
functional departments while others in charge of product or projects. This grid is usually
intended to send a pure case of dual command. The issues are results being difficult to assess
point of authority, buck passing, confusion and disunity of command.

Solutions in Engineering, R&D and Product management

The more sophisticated companies in high-technology industries have found no alternative to the
process in which matrix management solves the problem of authority by clarification of the
authorities and responsibilities of the functional and the project manager. In product management
and marketing other companies have successfully implemented this theory.

Problems with Matrix Management:

The following problems are seen with Matrix Management:

 Conflict between functional and project managers over limited resource.

 Role conflict, role ambiguity and role overload
 An imbalance of authority and power
 Sometimes too procedure oriented that lead to administrative cost rising
 Time consuming

Guidelines for making Matrix Management effective

The following Guidelines need to be followed for making Matrix Management effective:

 Objective definition of project

 Role clarification as well as authorities and responsibilities.
 Basis of influence to be knowledge rather than rank
 Balanced powers between all divisions
 Installation of appropriate cost, time and quality control.
 Undertake organization and team development
 Selection of experienced manager for the project
 Reward project managers and team members fairly.

Strategic Business Unit(SBU)

The theory behind this recently devised organizational device is to ensure that each product of
product line of the hundreds offered by the company got the same attention as if it was
developed, produced and marketed by an independent company.
To be called an SBU it must satisfy certain criteria:
a) It must have its own mission distinct from other SBUs.
b) It must have definable group of competitors.
c) It must prepare its own integrative plans.
d) It must manage its resources in key areas.
e) It must have a proper optimal size.

Benefits of using SBUs: The major benefit of using SBU is to make sure that the product would
not get lost among other products. In short it attracts the attention of the manager and staff whose
job is to guide and promote a product line. It is thus an organizational technique to preserve the
entrepreneurial attention.

Choosing the pattern of Departmentalization

No one departmentalization technique can be applied to all organizations. Managers must choose
this on situational basis.-the jobs to be done, the way they should be done, persons involved etc.

The Aim: Departmentalization is simply of arranging activities to facilitate the accomplishment

of objectives. As each process has its own advantages and disadvantages the process of selection
involves consideration of relative advantages of the organization structure.

Mixing type of Departmentalization

Another point of highlight is mixing types of departmentalization with functional area. The
purpose is to group activities in the manner which will best contribute to achieving enterprise
objectives. I case of variety of bases managers should take advantage of different alternatives.

However this logic is frequently ignored by those who design organization structures. This can
be so as to make the structure look pretty which is not a good practice. The main motive is to
provide efficient coordination, effective development and smooth functioning of the
organization. If one of this is not carried out properly the whole purpose gets defeated.