Read this article to learn about “Departmentation: Its concept, Structure, Benefits and other Details!”

To survive and grow two or more people working together must organise themselves to achieve common objectives. In the previous article we have described in detail about the elements of organization structure.


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The main challenge in creating an organisation structure is to take into consideration the five dimensions.


(a) Functions;

(b) Products;

(c) Geographic markets;


(d) Customer segments; and

(e) Projects (both external and internal).

Structure is a means to an end and therefore, must aid and facilitate the organistic members to carry out the organisation work.

Concept of Departmentation:

Departmentation refers to grouping of jobs, identified earlier, into work units on some logical basis. Every level in the hierarchy below the apex (the Board of Directors and the (EO) is departmentalised and each succeeding lower level involves departmental differentiate Different systems use different words to denote departmentation.


In the military organisation, group, company, and battalion are used; in the government, department, branch, and section are used; and in the private sector department, divisions, sections, cells or projects are used.

Bases for Departmentation:

An organisation can be departmented on different bases depending upon its needs. Some of the important bases are given under. clip_image002

1. Functional Departmentation:

Similar tasks requiring similar skills grouped into work unit are referred to as functional structure or functional departmentation also known as U-form organisation.


With the U representing “unitary”, in Figure 10.1 functional departmentation has been shown for a business firm engaged in manufacturing of goods and also of Engineers India Ltd. (a consultancy firm).

In the first case production is the responsibility of chief production officer; marketing problems come in the arena of chief marketing officer. Main point to be noted is that each member of a function works within his area of expertise.

Functional departmentation can be used for any type of organisation. The functions may change according to the objectives of that particular organisation. The main merit behind this kind of structure is to achieve size advantage by putting people with common stills and organisations into similar units.

This structure is suitable when the environment is stable, i.e., problems can be predicted and the need for change and innovation are limited. The merits and limitations of this kind of departmentation are given in Table 10.1.


Table 10.1: Merits and limitations of Functional Departmentation:

Merits Demerits
– Maintain power and prestige of major- Economy of scale with efficient use of resources- Task assignment in consistency with expertise and training

– Better quality technical problem – solving

– Facilitates tighter control by chief executive

– Focus on department rather than goals and issues.- Difficulties in pinpointing responsibilities for things like cost containment, service quality and innovation- Expertise only in narrow field.

– Functional chimneys problem due to people’s mindset and breakdown of cooperation.


– Slow decision making due to reference to top management

2. Divisional Structure:

When people who work on same product process, customer group or geographic reason are grouped, it is known as divisional structure (also known as M-form organisation, with the M representing “multidivisional”). Divisional structures are self – contained divisions. Thus, divisional structure includes different set of structures. (See Figure 10.2.)clip_image004

The merits and limitations of each one of the above have their own merits and limitations On the whole the merits and limitations of divisional structure have been shower in Table 10.2.


Table 10.2: Merits and Limitations of Divisional structures:

Merits Limitations
– Better flexibility to respond to environmental challenges.- Better coordination across functional departments.- Greater responsibility for product or service delivery — Reduction in size of economy.— Increase in cost due to duplication of resources and efforts in every division.— Competition or lack of cooperation among deferent divisions for resources and top management attention.


Matrix Structure:

The focuses in functional structure remain on specialisation, and in divisional structure it is on the results. But divisional structures suffer from duplication of resources and efforts. Matrix structure provides the benefits of both functional and divisional and it is known as Matrix structure and minimises the limitations of the two.

The foundation of matrix is a set of functional departments. A matrix organisation is a complex structure because it depends upon both vertical and horizontal flows of authority and communication. Whereas functional and divisional structures depend primarily on vertical flows of authority and communication.

The special feature of the matrix is that employees have two bosses – the functional boss (parent department) and the project pass (host department). Project boss has authority in relation to project goals. But promotions, salary hikes and annual reviews come under the functional boss.

In this structure the different functional departments depute their specialists to work on the project under the project boss, thus cross – functional teams share their expertise and information in a timely manner to solve problems.


The benefits and Limitations of Matrix Structure are given in table 10.3.

Benefits and Limitations of Matrix Structure:

(a) More cooperation across functions.

(b) Improved Decision making.

(c) Greater flexibility in adding / deleting or changing activities or changing demands.

(d) Better customer service due to presence of project manager.


(e) Better performance accountability.

(f) Improved strategic management, better motivation and commitment to organisation or people (as teams can be created, redefined and dissolved as needed).

(g) Opportunities of learning new skills.

(h) A useful vehicle for decentralisation.

(i) Two boss means power struggles, buck passing, and dual reporting channels.

(j) Team meeting time consuming.


(k) Two bosses mean creating confusion.

(l) More time required for coordinating task related activities.

(m) Propensity to foster power struggles because of confusion and ambiguity.

(n) Higher over heads because more management positions are created.

(o) Dual source of reward and punishment.


The matrix structure is most suitable when, first there is strong pressure from the environment ; second, when large amounts of information is required to be processed ; and third, when there is pressure for shared resources.


Matrix structure is used by pharmaceuticals, electronics, aerospace, service industries, professional areas (accounting and the non-profit sectors (like hospitals and research). The use of matrix structure should be justified in terms of cost, efficiency, and organisational development.

Project Structure:

A project structure is an advanced type of matrix structure. A project structure has no formal departments where employees can go back at the completion of a project. Rather, employee takes their skills, abilities and experiences to other projects, one after the other. In project structures all work is performed by teams.

The advantages of a project structure are that since there is no departmentation or employee job titles, decision making is not slowed. Secondly, herein managers work as facilitators, coaches and mentors. However project structure remains to be ‘fluid and flexible” organisational designs.

Although there are theoretical differences between matrix and projects structure, most of the people discuss the two together.


Why (Rationalisation) Departmentalisation?


Bases for Departmentalisation SPAN or Management effect of span of structure.

Network Structure:

In the traditional organisation structure, every activity was to be done in-house or to own everything. The new model or network structure also called as cluster structure says concentrate only on “Core” activities and go for strategic alliance cooperative strategy and or “outsourcing” the peripheral activities.

Outsourcing means contracting business functions to outside contractors or suppliers. An airline may outsource food, engineering services and airport handling.

An all-India examination body outsources receipt of examination forms, preparation of list of cheques, filling deposit slips of the bank, despatch of admission tickets, checking of marks etc.

The firm itself is very small, comprises a few full-time core employees working from head quarters. The insurance company has outsourced preparation of insurance policies, call centre, claim settlement and the accounting function; and has entered into an alliance with a bank, who would be selling the insurance policies through its all-India network.

The availability of information technology has made the job of outsourcing very easy. Network structure enables firms to remain Cost-Competitive, very learn and streamlined. The job of the core people is merely to coordinate with the outside related firms.


The merits and limitations of network structure are given in Table 10.4.

Table 10.4: Advantages and limitations of network structures: 

Advantages Limitations
Allows firms to what they do best and contract out the balance to those who do them the best- To remain cost-competitive. Small number of employees. The more complex the business or mission more complicated the network of contracts & alliances.If one part of the network fails to deliver, the whole system has to suffer. Loss of control over activities performed outside. Hidden costs of outsourcing-vendor search & contracting, transitioning to vendor, managing the effort, and transitioning after outsourcing.

Span of Management:

Once the firm decide of the base for departmentation, the next thing to be decided is how many employers be put under one manager to whom he can efficiently and effectively direct ?

Concept of Span of Management:

Span of management, also known as span of control refers to number of subordinates directly reporting to a manager, whom the manager can efficiently and effectively supervise and control.

What is the ideal span of Management?

There is no agreement about the number of subordinates to be managed by one manager, whether it should be narrow (tall structure) or wide (flat structure) and what constitutes narrow and wide span.

The classical theorists were in favour of narrow span. VA Graicunas in 1933 came out with a formula to define relationships in terms of direct single relationships, direct group relationships and cross-relationships.

Total relationships = n (2n/2+n-1)

In case of 8 subordinates less than one manager means 1080 relationships. On the basis of this work and his person experience Urwick suggested 5 to 6 subordinates as the ideal span or number of people to be managed by one manager.

It has also been found that as we go down the hierarchy the span gets wider. As a manager goes up in the hierarchy, he has to deal with a larger number of non-structured problems. That is why top manages needing a smaller span compared with first-line managers.

Determinants of span of Management:

How much of span shall be ideal depends upon the following.

1. Nature of work (similarity or dissimilarity of jobs, degree of needed interaction, and the extent of standardised procedures in use).

2. Qualities of the supervisor (Managers believing in theory Y work with wider span).

3. Qualities of subordinates (educated technically competent, trained and experienced do not need much guidance).

4. Levels of Management (inverse relationship between the span of control and number of levels in hierarchy in an organisation).

5. Use of technology for interaction (internet, emails, mobile phones, etc. enable wide span).

6. Clarity of plans and Definiteness of Responsibilities (supervision becomes easy and span may become wider).

7. Use of staff specialists (work being shared, wider span is possible).

8. Geographic proximity of subordinates (Nearer the subordinates to supervisor, greater the span).