Departmentation By Product & Customer

 
1.0 INTRODUCTION

We discussed two forms of Departmentation   last week. These were the Departmentation   by enterprise function and Geographic/territorial forms of Departmentation  . We noted their distinctive
advantages and disadvantages. This is necessary so that a manager who wants to adopt any or the two of them will appreciate their values and the extent to which they will meet his organizational objectives.

We are still having other forms of Departmentation   to go through. Remember we made a comment that forms of Departmentation   are many. We are going to take, at this stag of our course the principal ones among. It is for this reason that we are discussing the product and customer forms of Departmentation   in our note present. Again these forms Departmentation   like the ones we discussed in our last note (Departmentation   by enterprise function and Geographic/territorial form of Departmentation  ) have their relative advantages and disadvantages as well. We shall treat all these and more concerning this aspect of our discussion.

One other preliminary remark I will further bring to your attention is that we are still discussing the management function of organizing. I did stress that the function has many facets that compose it. And we stressed that this is one of the functions of management where the conceptual and design skills of management are applied. And the function of organizing demands creativity in fashioning the favorable environment conducive to human efforts. 

2.0 OBJECTIVES

By the end of this note, you should be able to:

· Describe product and customer forms of Departmentation   

· List and explain the advantages and disadvantages of product and customer types of Departmentation   

3.0 MAIN CONTENT

3.1 Product Departmentation 

 Product Departmentation   is the identification of necessary activities for the production and sales of product. These activities are then grouped and assigned to managers along product lines. This is a strategy and it is a way that top level management uses to delegate to a lower level extensive authority. The authority is used not only to produce and to market but also to carry out the required engineering and services associated with the products. Consequently, each manager is responsible for every issue that has a bearing in respect of the product that has been placed under him. See the diagram below.

 

Fig. 8.1: Product Departmentation    

 3.1.1 Advantages of Product Departmentation   

This form of Departmentation   has its own set of advantages:

 (a) Since each product has a manager, it has been made possible for the manager to concentrate all his efforts and those of the team members, that is, those subordinates working under him on the success of the product. Every thinking and action are necessary so that the product will be successful in the market.

And the success is measured not just by the volume of sales made and the revenue to the organization but equally important the degree of satisfaction that the purchasers and consumers have arising from the use of the product. Issues concerning product development, product planning, pricing, promotion and distribution among others are handled by the manager and his team.

 (b) Responsibility for profit making is again placed at a lower level, just as the case in respect of geographic form of Departmentation  . The product manager must justify this confidence and exercises his initiative by taking good decisions that will ensure the success of the product in the market and as a result brings in money to the organization.

To achieve this, beyond bringing out a product that can satisfy the need(s) of the consumers, expenses must be controlled. This is because profit and cost travel in opposite direction. If profit is going to be made, then expenses must be reduced. But if the manager says there should be no profit, then let him unduly increase the expenses. Of course, his job is on the line.

 (c) The form of Departmentation   improves the coordination of functional activities. This is possible because each product manager has been given the charge to make profit. But responsibility can not be given without the commensurate authority. As a result the necessary authority has also be given to the manager to do all he can to ensure success. Within him, he can be able to ensure that there is cooperation and understanding among all the departments. The production department can have excellent cooperation with the engineering department. Also the production department works harmoniously with the marketing/sales department, all of which is important to give the customer satisfaction.

(d) It provides good training ground for the position of the General manager or the Managing Director. This is possible because at the lower level, the product manager is already familiar with the politics of dealing constructively with the functional managers  164 who are specialists. By the time the product manager is appointed a General manager, he brings his experiences to his new job as a generalist.

(e) The product and/or service can be diversified. Market and Marketing researches can be conducted in order to achieve this. In fact, anything that can be done to ensure continuous profitability and survival of the product needs to be done by the manager, more so, when the commensurate authority has already been provided. Consequently, anything that will permit reasonable growth and diversity of products and/or services should be undertaken by the manager.

3.1.2 Disadvantages of Departmentation  by product

There exist disadvantages too of this form of Departmentation  :

(a) The form of Departmentation   requires not specialists as product manager but generalists who have the ability to coordinate functional activities. If a specialist, say an engineer is appointed who lacks general managerial ability, possibility does exist that he may take a decision favorable to engineering and/or production. This will not be well for the product because the other departments will start complaining or carry out activities detrimental to the success of the manager as a way of showing discontent.

(b) It tends to make it impossible to have economical central services such as making bulk purchases by the headquarters for the product managers. This will naturally attract some discounts, such as quantity discount, price discounts etc. But these benefits may not occur at this scale because it has been made that product managers resent the idea of having goods purchased for their use without any contribution being made by them to the decision to buy the items.

(c) It increases the cost of having product managers and other subordinates reporting to them. Levels of positions are created which need finance. The finance for the payment of their salaries, running their offices and so on. These are called overhead cost which the organization has to bear

3.2 Departmentation   by Customer

This is grouping of activities so that they can reflect a primary interest in customers. As a result, the customers represent the key to the way activities are grouped when each of the different activities the organization does for them is managed by one department head. The customer groups must be clearly defined to make this form of Departmentation   meaningful. Educational institutions offer regular and extension courses to serve different groups of customers. Banks also have departments that address the special needs of customers such as savings, current, agriculture, housing, among others. See the diagram below.

 

 Fig. 8.2 showing customer Departmentation   of a bank.

 In customer form of Departmentation  , there are also advantages and disadvantages. 3.2.1 Advantages of Customer Departmentation   

(a) It encourages concentration on customer needs: This is one good reason for this type of Departmentation  . The customer has needs which could be regarded as unfulfilled desires. Because the desires are not fulfilled, they create tension and human beings do not like to live in a situation of tension. They take action which they hope will reduce the tension.

This is why an organization must try to assist in the tension reduction behaviors of the customers by concentrating their efforts on these needs with the Manager Current Account Banking Agricultural Banking Housing Banking Savings Banking hope of satisfying them. Customer form of Departmentation   assists along this line.

(b) Arising from the point made in "a" above this form of Departmentation   gives the customer the feeling that they have an understanding organization. This feeling of satisfaction is important because it creates good relationship between the organization and the customers. And when customers are satisfied with an organization, they will always make repeat purchases, that is, when the need arises to buy, they go for the product of the organization that they are satisfied with. You must note that repeat purchases creates brand loyalty and this is the wish of every organization.

(c) Customer Departmentation   develops some level of expertise on the organization members of staff. The measure of expertise ensures continuous improved services to the satisfaction of the consumers of the organization's products and/or services. This is crucial because when the customers are always made happy, the word of mouth from them will go round, thereby encouraging potential customers to try the services of the organization. When this is done, the market share of the organization is increased.

3.2.2 Disadvantages of customer form of Departmentation   

There are also disadvantages of customer form of Departmentation   which can be seen from the following:

(a) Operations may be difficult to coordinate. The difficulty arises because of the competing customer demands. Taking the bank as an example, it may be difficult to link the activities of agricultural banking to that of housing. The demands from both forms of banking are different because of the different needs of the customers.

(b) Customer form of Departmentation   demands expertise. This means that it is only managers who have the requisite skills that should be employed. These managers may be difficult to find in sufficient quantity and quality.

(c) Sometimes, it may be difficult to clearly define customer groups so as to know the special services that they need. For example, difficulty sometimes arises as to the distinction between small scale businesses and agricultural business so as to work out special products for each. 

(d) Again, during the lean season, that is the period that the number of customer reduces before it picks up again, the resources of the organization will be idle.

4.0 CONCLUSION

Again two forms of Departmentation   have been covered in this note. These are the product Departmentation   which is grouping activities along product line, and customer Departmentation   which calls for proper identification of customer groups and group activities accordingly. We have also seen the relative advantages and disadvantages associated with these forms of Departmentation  .

5.0 SUMMARY

Two important forms of Departmentation   have been discussed. Added to the two previous discussed in note 7, we now have four major forms of Departmentation  . For the time being, we are going to stop because we still have other issues that you need to know concerning the functions of organizing which we are currently discussing. However, you are enjoined to read the books provided in the references for additional information on Departmentation  . In our next note, we will be treating relationships in formal organization. 

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