1. Functional Departmentation: –This is the simplest form of Departmentation when grouping of departments is done on the basis of functions such as production finance marketing sales purchase and personnel etc, it is known as functional Departmentation. Further sub divisions of the functions may be formed like marketing can be divided in to advertisement sales and after sales service. So we can classify functions into two parts.

Basic functions i.e. Production Marketing Finance and Personnel  

Secondary Functions: – These are further parts of basic functions according to the organizational needs or operations like Production: – Product planning, R&D, Quality control and material handling

Functional departmentation is useful where there is production of single product or similar kind of product, for example TV Computer monitor or TFT.


  • Advantage of specialization
  • Easy control over functions
  • Pinpointing training needs of manager
  • It is very simple process of grouping activities.


  • Lack of responsibility for the end result
  • Overspecialization or lack of general management
  • It leads to increase conflicts and coordination problems among departments.
  1. Products: – When grouping of activities and departments formed are given name on the basis of products manufactured in an organization, it is called products departmentation. It is applied where there is a large range of products are manufactured. When there are several product lines and each product line consists of a variety of items, functional classification fails to give balanced emphasis on each product. Apart form this use; product or services may be made the basis of major divisions by a departmental store, a banking concern and an insurance company. Again, manufacturing an marketing departments may subdivide their activities on the basis of products.


  • It ensures better customer service
  • Unprofitable products may be easily determined
  • It assists in development of all around managerial talent
  • Makes control effective
  • It is flexible and new product line can be added easily.


  • It is expensive as duplication of service functions occurs in various product divisions
  • Customers and dealers have to deal with different persons for complaint and information of different products.
  1. Territories: – Like the products basis, geographical regions are adopted for main division as well as for subdivision purposes. When activities of an organization are physically dispersed in different locations territorial departmentation is adopted. Units that are located at different areas are made so many self-contained divisions of the organization. Marketing activities are very often subdivided on the basis of geographical areas. This form of departmentation can be useful where business is on national or international level. For eg. Indian railways, insurance company use territorial departmentation.


  • Help to cater to the needs of local people more satisfactorily.
  • It facilitates effective control
  • Assists in development of all-round managerial skills


  • Communication problem between head office and regional office due to lack of means of communication at some location
  • Coordination between various divisions may become difficult.
  • Distance between policy framers and executors
  • It leads to duplication of activities which may cost higher.
  1. Customers: – When departments are formed to cater different kind of customers it is known as customer departmentation this basis of classification is widely followed in subdividing activities of the marketing department. When the products are offered to market through various channels and outlets, it has the special merit of supplying goods in accordance with the peculiar needs of customers. Customers may be classified according to buying capacity or nature like whole sale, retail and export or government or general public. Most departmental stores may attempt t reach customers preferring low price or higher price


  • It focused on customers who are ultimate suppliers of money
  • Better service to customer having different needs and tastes
  • Development in general managerial skills


  • Sales being the exclusive field of its application, co-ordination may appear difficult between sales function and other enterprise functions.
  • Specialized sales staff may become idle with the downward movement of sales to any specified group of customers.