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.
