What is Departmentalization by Product?
Departmentalization by product/service is an organizational structure in which different departments are created based on the nature of products or product lines.
Every product or product line has a team or department where all members contribute to 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 of Product Departmentalization
Following are some notable pros and cons of product/service departmentalization.
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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 in 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 of Departmentalization by Product
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 costs rise due to the provision of a functional specialist in each product department.
And, sometimes it also reduces the profitability of the organization.
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Chances of Conflicts
There is the possibility of conflicts between the product and other departments as their responsibilities are interdependent.
When To Use Product Departmentalization?
The following are the 4 suitable conditions for to use of departmentalization by product in the organization.
When the Organization Offers Diverse Product Lines
Departmentalization by product is ideal for organizations producing multiple product lines or services.
By grouping activities and resources under specific product categories, companies can focus on specialized production, marketing, and sales strategies for each product.
This ensures better quality, customization, and market responsiveness for diverse products.
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When There Is a Need for Product-Specific Expertise
Organizations that require distinct expertise, tools, or processes for different products benefit from product-based compartmentalization.
For example, in industries like electronics or consumer goods, unique production methods and marketing approaches are needed for each product.
This structure allows teams to develop specialized knowledge, improving efficiency and innovation.
When Monitoring Product Performance Separately Is Crucial
In large companies, tracking revenue, profit, and performance metrics for each product line is essential.
A product-based structure enables clearer accountability for department heads, who are responsible for their product’s success or failure.
This makes evaluating the contribution of each product to the overall organization easier and more transparent.
When the Company Operates in Competitive Markets
In highly competitive industries, such as technology or pharmaceuticals, product specialization is critical.
Departmentalization by product enables teams to focus intensely on product development and market differentiation.
This agility helps organizations respond quickly to market changes, customer needs, or competition within specific product categories.
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Sajan Kushmi is a content writer with more than 4 years of experience. He holds BIM Degree. He write on the topics related to Management, Marketing, and Entrepreneurship.