Departmentation by functions
It is a proper method of the function of the grouping of an enterprise. Under it, activities are grouped on the basis of the functions intended to be performed by them. In a manufacturing enterprise, for example, the basic functions consist of production, marketing and finance. In a wholesaling business, the activities may be grouped under buying, selling and finance.
Merits
1. It is a scientific and time tested method.
2. It preserves the importance of the basic activities of an enterprise.
3. It follows the principal of specialization.
4. It enables effective performance control.
Demerits
1. It is not suitable for an enterprise having widespread and diverse operations.
2. It results in the excessive work and responsibility for the departmental heads.
3. It carries specialization a bit too far. When each employee specializes only in a small area of work, he may not be able to develop a balanced attitude towards the work as a whole.
4. It happens coordination between the different functions.