Departmentalization by Territory: Advantages and Disadvantages

Departmentalization by Territory method is followed where; unless to local conditions appears to offer advantages, such as low cost of operation and opportunities to capitalize on attractive local conditions as they arise.

Territorial departmentalization is especially popular for sales where division appears feasible according to some geographic market segregation.

It also provides a good arrangement for training, because the executive can demonstrate his/her ability in certain territory and thus merit promotion to a more important area.

Advantages of Departmentalization by Territory

  • Places responsibility at a lower level Places emphasis on local markets and problems.
  • Improves co-ordination in a region Takes advantage of economics of local operations.
  • Face-to-face communication with local interests.
  • Furnishes measurable training ground for general managers.

Disadvantages Departmentalization by Territory

  • Requires more persons with general manager abilities.
  • Tends to make maintenance of economical central services difficult and may require services such as personnel, or purchasing at the regional level.
  • Increases problem of top management control.

In the image the organization chart for an international restaurant franchise organization. Each area vice-president is totally responsible for the development, construction, operations and marketing activities of that territory, and oversees the general managers of finance, marketing, human resources and production.