Departmentalization refers to the process of grouping activities into departments.

Division of labour creates specialists who need coordination. This coordination is facilitated by grouping specialists together in departments.

Owing to the complexity of tasks and the competitive environment in which organisations operate, they often use a combination of the above-mentioned methods in departmentalization.

As March and Simon (1958) noted when tracing a first approach to departmentalization back to Aristotle (Politics, Book IV, Chap. 15), the problem of distributing work, authority and responsibility throughout an organization is hardly new. In modern times, Gulick and Urwick (1937) were the first to introduce a theory of different departmentalization strategies, which were referred to as departmentalization by purpose and departmentalization by process.

”First [organization by major process] ... by bringing together in a single office a large amount of each kind of work (technologically measured), makes it possible in the most effective divisions of work and specialization. Second, it makes possible also the economies of the maximum use of labor saving machinery and mass production.