Departmentalisation by product

Here the activities associated with individual products or closely related product lines are grouped together. It is extensively used in many retailing and manufacturing organizations. This form of departmentalization has certain advantages:

•    All activities associated with unique products are kept together;
•    It facilitates use of specialised capital, facilitates a certain type of coordination and permits maximum use of personal skills and specialized knowledge.
•    Internal competition is promoted—one product line competes with another. The performance of the manager of a product is measured in part by comparing his results against those of the manager of another product. A good example in Kenya would be EAI and its brand managers.
•    Profitability of various products is more easily evaluated. It is possible to determine which products or product lines are making losses.

This form of departmentalization also has certain disadvantages:

• Additional management personnel may be required to handle different product lines.

• Some duplication of efforts may result. Each product line may require its own accountant, engineer, marketing and production staff. Personnel costs may as a result outweigh the benefits of product departmentation.

• Coordination may be difficult. This is especially true for firms with many product lines i.e. complex organizations.