What is departmentalization?
In business organization, this term refers to an aggregation of groups of people or activities or functions, with specific objectives and results to be achieved.
The organization is divided into separate structures (departments) each with specific functions and responsibilities but with the common purpose of achieving the overall objectives of the company.
Often employees perform similar tasks, sometimes they have multiple competences and operate within multidisciplinary structures.

Why do organizations need departmentalization?
Departmentalization consists of splitting an organization into smaller and more easily manageable units. What are its objectives?

  1. Grouping specialized activities
    Group employees by skills and expertise. This allows managers to quickly assign tasks, supervise and delegate their collaborators.
  2. Improve communication and coordination
    Regardless of its size, every organization needs efficient communication and coordination. Departmentalization helps to improve these two aspects that are crucial to achieving results.
  3. Establish decision-making authority
    As an organization grows, so does its complexity. It then becomes difficult for managers to coordinate employees and activities.
    Departmentalization facilitates supervision and allows managers to delegate authority more effectively by making employees accountable for their actions.
  4. Improving efficiency and productivity
    Structuring departments with employees with similar skills, tasks and knowledge can be beneficial for achieving objectives. Resources, knowledge and skills can be shared to collaborate on projects, facilitating the development of new and innovative products or processes.
    Departmentalization allows you to make the best use of employees’ talents and skills, with an extremely positive impact on their motivation.
  5. Establishing responsibility and improving accountability
    With departmentalization, the different departments decide which tasks to perform. The decision-making process helps to establish responsibilities and their meaning within the organization.
    Each employee will have a set of activities and objectives for which he/she will be responsible and this will also facilitate both the recognition of achievements and the allocation of rewards.

What are the main forms of departmentalization?
Briefly, five main types of departmentalization can be distinguished.
The type of departmentalization applied depends on the size, sector and business model of the organization. 

  1. Functional departmentalization
    This is the most common and groups employees according to the tasks they perform.
    For example, finance departments, logistics, human resources, marketing.
  2. Geographical departments
    If an organization groups its employees according to the territory where they operate, it uses geographical departmentalization. Examples are banks, retail chains, fast food outlets. This model makes it easier for managers to communicate effectively with employees operating in different countries, time zones and cultures.
  3. Product departments
    Activities related to the development, production and delivery of a product are departmentalized to ensure specialized expertise in each product line.
  4. Customer/market departmentalization
    This type is used by companies that produce products or provide services for specific markets or customers because it allows them to better understand the needs and desires of the target sector. It is used when great emphasis is placed on service efficiency and customer satisfaction.
  5. Process departmentalization
    It is common in manufacturing and production companies, where different processes need to be coordinated. It helps managers to effectively monitor and control product or service quality.

What should be considered when departmentalization is carried out?
While departmentalization can offer many advantages, there are certain aspects to consider before its implementation. The objective is to achieve the right balance between coordination and control, while maximizing productivity.

  • Specialization: to achieve maximum efficiency and productivity, it is essential that specializations are grouped together intentionally.  If an organization puts several specializations together, it is for a specific reason or purpose.
  • Coordination: activities have different levels of urgency and importance. When dividing into departments, it is essential to consider how the different departments will coordinate with each other to avoid overlapping and redundancy of effort.
  • Clear decisions: a balance between too much and too little control is needed. Too much control can stifle creativity and innovation, while too little can lead to chaos. The goal is to find a middle ground that allows employees to be both creative and productive.

The limits of departmentalization
Although the advantages of departmentalization are numerous, it is not without its limitations. Departmentalization can:

  1. Create silos if it is not well managed
  2. Generate ‘bureaucracy’ if the process is not clearly defined
  3. Stifle creativity and collaboration

“An adult organization is one in which people have the knowledge, skills, desire and opportunity to succeed on a personal level in a way that leads to the success of the whole organization”
Stephen R. Covey (Author of “The 7 Rules for Success”)