The process of grouping of activities into units for the purpose of administration is called departmentation. It can be defined “as the process by which activities or functions of enterprise are grouped homogeneously into different groups.”
The administrative units are called divisions, units or departments. The followings are the basis of departmentation:
(a) When departmentation is done on the bask of functions the departments created are production, marketing, accounting, finance and personnel departments.
(b) When departmentation is done on the basis of geographical area, the departments are known as eastern department, western department, northern and southern department.
(c) Departmentation can be done on the basis of customers.
(d) Departmentation can be done on the basis of product handled.