What is Departmentalization by Product/Service? Definition, Pros, and Cons

What is Departmentalization by Product?

Departmentalization by product/service is an organizational structure in which different departments are created in the organization based on the nature of products or product lines. Every product or product line has its own team or department where all members contribute toward product finishing and sales.

The main objective of product departmentation is to provide better quality products as such each product is handled by a single department. This organizational strategy is suitable for business organizations that produce various types of products in large quantities.

Under product departmentalization, a separate department is created for a single product or product line and all functions like production, marketing, sales, personnel, etc. of one department are brought together under the concerned department.

Every department is independent and given the necessary authority to control and direct employees working. The manager should be responsible for its expenses, revenue, profits, failure, and success. As such, product departmentation facilitates measuring the managerial as well as operational results and the contribution of each product line to the whole organization.

Advantages and Disadvantages of Product Departmentalization

Related: Time Departmentalization

Following are some notable pros and cons of product/service departmentalization.

Advantages:

• Quality Products – One of the main objectives of adopting the product departmentation method is to enhance the product quality of the company. It brings about specialization in a product or service which makes optimum utilization of resources and products finalized with utmost quality.
• Increased Sales and Profit – Along with product quality, this organizational strategy is also focused on increasing the company’s sales and profit. All departmental heads are directed to increase the market of the product and increase sales, and profit for the firm.
• Suitable for Large Organizations – This method is suitable for large and multi-product complex organizations. When companies produce different lines of product in large quantities service departmentalization is desirable.
• Easy Integration of Product-Related Activities – All activities associated with each product can easily be integrated and coordinated among departments.
• Effectiveness of Decision-Making – Since each department is focused on its own resources, people, and activities and specializes on it the speed and effectiveness of decision-making can be enhanced.
• Monitoring and Evaluation Become Easy and Effective – Top executives can easily monitor and evaluate the performance of each department as each department is independent.

Disadvantages:

• Less Effective Coordination – Departmental managers give more focus on their own product line rather than organizational overall activities. Thus, sometimes coordination becomes less effective.
• Not Suitable for Small Organizations – Departmentalization by product strategy of creating organizational structure is not effective for small organizations. It requires more time and costs. In this administrative cost rises due to the provision of a functional specialist in each product department. And, sometimes it also reduces the profitability of the organization.
• Chances of Conflicts – There is the possibility of conflicts between the product and other departments as their responsibilities are interdependent.

Read Next: Departmentalization by Territory