Early management writers argued that after deciding what job tasks will be done by whom, common work activities needed to be grouped back together so work was done in a coordinated and integrated way. How jobs are grouped together is called departmentalization. There are five common forms (see Exhibit 8–2), although an organization may use its own unique classification. No single method of departmentalization was advocated by the early writers. The method or methods used would reflect the grouping that best contributed to the attainment of the goals of the organization and the individual units.

1. One of the most popular ways to group activities is by functions performed, or functional departmentalization. A manager might organize the workplace by separating engineering, accounting, information systems, human resources, and purchasing specialists into departments. Functional departmentalization can be used in all types of organizations. Only the functions change to reflect the organization’s objectives and activities. The major advantage to functional departmentalization is the achievement of economies of scale by placing people with common skills and specializations into common units.

2. Product departmentalization focuses attention on major product areas in the corporation. Each product is under the authority of a senior manager who is a specialist in, and is responsible for, everything having to do with his or her product line. One company that uses product departmentalization is Nike. Its structure is based on its varied product lines, which include athletic and dress/casual footwear, sports apparel and accessories, and performance equipment. If an organization’s activities were service related rather than product related, each service would be autonomously grouped. The advantage of product grouping is that it increases accountability for product performance because all activities related to a specific product are under the direction of a single manager.

3. The particular type of customer an organization seeks to reach can also dictate employee grouping. The sales activities in an office supply firm, for instance, can be divided into three departments that serve retail, wholesale, and government customers. A large law office can segment its staff on the basis of whether it serves corporate or individual clients. The assumption underlying customer departmentalization is that customers in each department have a common set of problems and needs that can best be met by specialists.

4. Another way to departmentalize is on the basis of geography or territory—geographic departmentalization. The sales function might have western, southern, Midwestern, and eastern regions. If an organization’s customers are scattered over a large geographic area, this form of departmentalization can be valuable. For instance, the organization structure of Coca-Cola reflects the company’s operations in two broad geographic areas—the North American sector and the international sector (which includes the Pacific Rim, the European Community, Northeast Europe and Africa, and Latin America).

5. The final form of departmentalization is called process departmentalization, which groups activities on the basis of work or customer flow—like that found in many government offices or in health care clinics. Units are organized around common skills needed to complete a certain process. If you’ve ever been to a state office to get a driver’s license, you’ve probably experienced process departmentalization. With separate departments to handle applications, testing, information and photo processing, and payment collection, customers “flow” through the various departments in sequence to get their licenses.

Most large organizations continue to use most or all of the departmental groups suggested by the early management writers. Black & Decker, for instance, organizes its divisions along functional lines, its manufacturing units around processes, its sales around geographic regions, and its sales regions around customer groupings. However, many organizations use cross-functional teams, which are teams made up of individuals from various departments and that cross traditional departmental lines. These teams have been useful especially as tasks have become more complex and diverse skills are needed to accomplish those tasks.7

Also, today’s competitive environment has refocused the attention of management on its customers. To better monitor the needs of customers and to be able to respond to changes in those needs, many organizations are giving greater emphasis to customer departmentalization.