What is Departmentalization?

Troy Holmes
Troy Holmes
Separate departments are often created for each product line that a company produces.
Separate departments are often created for each product line that a company produces.

All large companies have multiple departments. These departments are specialized units that carryout specific functions for a company. Most organizations have the functional departments of human resources, accounting, sales, and information technology. Departmentalization is the process of grouping activities, customers, or job functions into specialized groups of an organization to create better coordination.

A department store is a good analogy for how departmentalization works in practice. A department store has different sections for specific materials or goods. Each section is designed around a specific product. Product departmentalization within an organization is similar to a department store. A company that makes multiple products will create separate departments for each product line. This makes each department of the organization efficient.

Some organizations segregate groups of the company by customer type. This is known as customer departmentalization. The credit card industry uses this approach in managing credit. Within a credit card companies, customers are categorized as business customers, high-credit customers, or high-risk customers. This approach allows the credit card company to create products and services based on a specific customer type, with experts in that field.

Geographic departmentalization is the business approach of breaking an organization into regions of the country or world. Most large international firms use this approach. By having customer service available within a specific country or region, products and services can be designed to enhance the customer experience in that area. This works well for companies with customers from both eastern and western cultures, as they typically have different expectations.

Process departmentalization is a business strategy that is analogous to an assembly line. Creating an organization that groups activities based on a specific process flow creates higher productivity. A good example of process departmentalization is built into customer service centers. Customers are typically routed through specific units based on the product and issue. These could include billing, defects, warranties, or general complaints.

With the increase of mergers over the last few decades brand departmentalization has also become a strategy for managing customers. The hotel industry has multiple types of hotels and chains that typically belong to a master hotel organization. These range from low-end motels to high-end, five-star resorts. This brand version of departmentalization creates customer loyalty to the specific brand.

One of the issues that companies face when using a departmentalization approach is reporting for the entire organization. With each department working as an independent unit, reporting for the larger company becomes difficult. This typically requires a significant integration process.

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Discussion Comments


I find it interesting how credit card companies use departmentalization to categorize their customers. I guess this is probably the best way overall to assess numerous applications at once.

I wonder if this kind of organization is based solely on credit score results and user provided data, or if there is some room for service people to shuffle you in the order of things.

For example, if you were once considered high-risk, would it be possible to negotiate your way back up, or would it solely depend on your credit score health?

Considering how many people are high-risk these days, you’d think companies would be more flexible with their categorization.


There are those that actually strive to create competition within their own businesses through departmentalization. While I was working in retail, we were departmentalized by region and had huge selling competitions that pegged all the different areas against one another.

This kind of competition through departmentalization can be very useful to have a company increase profits. With lots of showy prizes for the best performing regions, employees from top to bottom of their departments strove to bring in the best numbers possible.

I am curious to know what kind of problems can arise if there is too much competition between departments? Would this create a lack of flow in an organization and cause difficulties for the upper management?


@JordanD - Yes, not everyone in a departmentalized company is trained to answer your question or knows how to solve a certain problem with the company's equipment.

It's annoying to be put on hold, but I think it's worth the wait to be connected to someone who can actually help me. I don't want to waste my time talking to someone who doesn't know what I'm talking about when I describe an issue with their service. To me, that's more annoying than the problem itself.


Is this why I'm put on hold and redirected to another person when I call my cable or internet provider to fix a problem?


I just completed an intro to business course, and this article did a great job of outlining everything we learned about departmentalization and organizational management. It's kind of a confusing concept at first, but once you break it down, it's easy to see why a lot of large companies use divisional departmentalization. By breaking a large company into smaller departments, the customer can get the help they need faster and specific departments can work towards fixing common problems.

The downside of departmentalization, especially for new companies, is that it requires a lot of resources. New businesses don't always have the money to pay all the employees it would take to fill every department. We learned that departments can compete with each other, too, which causes problems for the company as a whole.

Usually, though, departmentalization is good for the company's efficiency and for customer satisfaction, so it's worth the extra funding. A business won't succeed if it can't provide for its customers!

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    • Separate departments are often created for each product line that a company produces.
      Separate departments are often created for each product line that a company produces.