What is Departmentalization By Product? Definition, and Pros/Cons

What is Departmentalization By Product?

The departmentalization which is created on the basis of the nature of a product or product line is called departmentalization by product. Here, a separate department is created for a single product or product line and all functions like production, finance, marketing, personnel, etc. are brought together under the concerned department.

The product or service method of departmentalization is appropriate in a firm that involves a large scale and various lines of products or services.

In product departmentalization, each department is independent and responsible to improve and expand its business performance. The department manager is responsible for its expenses, revenues, profit, failure, and success as he is given the required authority to control and supervise his own department.

It facilitates the measurement of the managerial as well as operational results and the contribution of each product line to the whole organization.

The main objective of creating departments by product/service is to focus on a single product/service, increase the marketability of a related product or service, increase sales of that product, and ultimately increase the profit of the firm.

Related: Departmentalization By Process: Meaning, & Pros/Cons

A typical example of a product line department is,

structure of departmentalization by product or service

In the above picture, Publication, Noodles, Electronic, and Beverage are the product lines. And Noodle is the product, and on the basis of the Noodles department, other functional departments are created like production, finance, marketing, personnel, as we discussed above.

Advantages of Departmentalization By Product/Service

  • The product departmentalization method is suitable for multiproduct complex organizations.
  • It brings specialization in a product or service which makes optimum utilization of human resources.
  • Each product can be focused on its productivity and profitability.
  • All activities associated with each product can easily be integrated and coordinated.
  • The speed and effectiveness of decision-making can be enhanced.
  • Monitoring and evaluation become easy and effective.
  • The product/service manager can be held accountable for the profitability of each service/product.
  • It permits maximum utilization of specialized product/service facilities.

Disadvantages of Departmentalization by Service

  • Departmental managers focus on their own product line rather than the organizational overall activities. Thus, coordination becomes less effective.
  • Conflict may arise between product/service and other departments as the responsibilities are interdependent.
  • There may be an underutilization of plant capacity if the demand for the product/service is not sufficient.
  • It creates the problem of effective control over production divisions by the top management.
  • The administrative cost rises up due to the provision of functional specialists in each product department. This reduces the profitability of the organization.
  • The service/product manager may ignore the overall objective of the organization.

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