(A) Meaning: 

Departmental organizations are run by the Government departments headed by a minister who guides and controls the activities of the undertaking.

(B) Merits of Departmental Organization: 

1. Qualified Staff : Departmental organizations are properly managed and supervised by the qualified government staff.

2. Proper Use of Funds : The Departmental organizations provide public utilities or basic necessities. Government Department works under the control and supervision of the concern ministry. Charges for misuse of funds are less in departmental organization.

3. Social Welfare : Government undertakes socio-economic activities to promote social welfare. Providing essential comlhodities to people at reasonable price is top priority of the state. Thus, socio-economic objectives are achieved with Government control.

4. Public Accountability : The concerned minister incharge of the government organisation is answerable to the Parliament or Assembly. The elected representatives of people can raise the question about the working of this enterprises on behalf of public at large.

5. Maintain Secrecy: In matters of strategic, national importance, secrecy is essential and confidentiality can be maintained in certain business activities such as defence deals, atomic plants, drugs and pharmaceuticals etc.

6. Easy Formation : These organisations are very easy to form. They do not require any special statute or registration.

7. Direct Control: These organizations are properly managed and supervised by the qualified Government Staff Minister at the top is responsible to the Parliament for its operations.

8. Direct Revenue to Government : The revenue of departmental organizations directly goes to the jr Government treasury. 

9. Less Overheads : The administrative expenses are less as government only operate it. 

10. Easy Finance : These organisation get the required finance by the government through direct allocation of funds from the concerned ministry. 

11. Development of Public Utilities : The departmental organisation provides public utilities or basic r necessities. People require essential services and products such as Railways, Transport and Communications, Telephone services, etc. Thus, essential services are made available by the Government department at a very reasonable rate.

(C) Demerits of Departmental Organisation: 

(i) Delay in Action : In Departmental organisation there is always centralization of authorities. Such excessive centralization of authority leads to delay in action. 

(ii) Inefficiency and Corruption : There is lot of inefficiency and corruption in departmental organisation. 

(iii) Less Scope for Initiative : The working of this organization suffers from lack of continuity and stability because the policies of the department are decided by the ministers.

(iv) Instability : The working of this organisation suffers from lack of continuity and stability, because the policies of the department are decided by the Ministers. 

(v) Delayed : The executives at the lower level have to depend on higher authority for all the decisions. They can’t take, their own decisions. 

(vi) Lack of Flexibility : The Departmental organization lacks flexibility in decision making. This is because there is centralization of authority. 

(vii) Incurring Losses/Huge Losses : Most of the government undertakings incur heavy losses due to lack of business skills and approach as they are not professional. 

(viii) Absence of Professionalism : There is lack of professionalism in the management of departmental organization. Often the decisions are taken unsystematically, moreover the data collected is often out dated and there is no proper analysis of such data. Hence, the decisions are taken hastily. 

(ix) Political Interference : The Ministers, bureaucrats, Government officials interfere in the day to day working of the undertaking. 

(x) Red Tapism and Bureaucracy : The Departmental organisations are controlled by government. Departmental organisations are facing delays, red tapism, corruption, lack of initiative, bureaucracy, etc. 

(xi) Insensitive to Consumer Needs : The officials of this organisation are insensitive to the needs of consumers. The officials are not bothered about consumer needs and consumer satisfaction as they are more worried about their security of service in view of monopolistic position.

(xii) Lack of Autonomy : Departmental organisation lack autonomy and freedom in working and decision making.