1. Functions. Important enterprise functions provide the usual basis for classifying activities into departments. Manufacturing, marketing, finance, personnel, accounting and engineering are the typical functions of an industrial enterprise, and departments ma be established on the basis of such functions. But all these functions are not alike in importance from the business point of view. Marketing and manufacturing are the basic functions of an industrial concern, and others are regarded as service functions because they exist for supporting the main functions of the business. Accordingly, basic and main functions must be given a higher organizational status than the status enjoyed by service functions. Further more, the size, nature and volume of business have an important say in creating departments. A small business may not require so many departments, and it may be put under the manufacturing departments, viz. Marketing, manufacturing and finance. Purchasing, engineering and accounting may be put under the manufacturing department, and accounting under finance. Conversely, large-sized enterprises may be required to create more units than this classification of functions warrants. For example, marketing department may be split into three separate ones like sales, advertising, and market research & product design. This type of departmentation is known by fictionalization.

2. Products. Products manufactured may be adopted for division as well as for sub division purposes. When there are several product lines an each product line consists of a variety of items, functional classification fails to give balanced emphasis on each product. Slow-moving and outdated products may be given greater attention at the cost of growing ones. For the sake of expansion and development of their products, many large enterprises have created more or less autonomous, self-sufficient products divisions based on either one single product or a group of related products. A gigantic structure with separate product lines is usually laid on this pattern of departmentation which is technically called divisionalization. With favourable product and market characteristics, divisionalization become the only choice available to large-sized enterprises. Apart form this use, product or services may be made the basis of major divisions by a departmental store, a banking concern and an insurance company. Again, manufacturing an marketing departments may subdivide their activities on the basis of products.

3. Territories. Like the products basis, geographical regions are adopted for main division as well as for subdivision purposes. Units that are located at physically dispersed areas are made so many self-contained divisions of the organization. Apart form this divisionalization, marketing activities are very often subdivided on the basis of geographical areas.

It has almost the same advantages and disadvantages as are to be found in the case of departmentation by products. There are two special advantages of this pattern of grouping activities. Being nearer to the market and becoming familiar with local conditions, this classification help to cater to the needs of local people more satisfactorily. In addition, the economy in transport cost, the local supply of raw materials or services and the convenience of supervision make a significant contribution towards the lower cost of operation.

4. Customers. This basis of classification is widely followed in subdividing activities of the marketing department. To give individual attention to diverse groups of buyers in the market, sales activities are often split into several parts. When the products are offered to an extensive market through numerous channels and outlets, it has the special merit of supplying goods in accordance with the peculiar needs of customers. Sales being the exclusive field of its application, co-ordination may appear difficult between sales function and other enterprise functions. Specialized sales staff may become idle with the downward movement of sales to any specified group of customers.

5. Processes. The manufacturing activities may be subdivided on the basis of their processes of production. Similar machines are grouped into separate sections that are utilized for a distinct operation of the job. For example, lathe machine, drill machine, grinding machine and milling machine are placed in each distinct unit. In office work also, this basis of grouping activities has become common, e.g., filing department, mail handling department and duplicating department. Cost and economy considerations urge the use of electronic office equipments and other costly machine on the basis of this subdivision. It is, however, not a suitable basis to be utilized in any mass production arrangement.