Divisional Structure
A divisional structure is a type of organizational setup that groups together employees who are responsible for a particular type of product or service on the market, according to work flow. It generally consists of several parallel work teams that focus on a single product or service line.
Unlike departments, divisions are more autonomous, each having its own chief executive, often a vice president, and generally managing its own hiring, budget, and advertising.
Although small businesses rarely use a divisional structure, it can work for firms such as ad agencies, which have not just dedicated staff, but budgets focused on major clients or industries.
This approach is beneficial when decision-making must be concentrated at the divisional level in order to react more agilely to particular scenarios.
The divisional structure is substantially advantageous when a company has many markets, products and / or regions. There are three types of divisional structures: product structures, geographic structures, and customer structures.
Characteristics
A divisional organizational structure gives a very large business enterprise the ability to separate large sections of the business into semi-autonomous groups.
Although generally more suitable for very large organizations, in some circumstances a divisional structure can also benefit a smaller company.
In all cases, the groups are mostly self-managed and focus on a particular aspect of the company's products or services.
The divisional structure of a company tends to increase its flexibility, and it also organizes the activities of the company around geographic, market, or product and service structures.
However, it can lead to higher total costs and result in a number of small disputed fiefdoms within a company, which do not necessarily work together for the good of the entire entity.
Make it work
Divisions must be well managed to be successful. The most important factor that determines the success of a company that uses a divisional structure is its executive leadership.
Senior leaders must understand what each division does and provide leadership to division managers on how to adapt to new strategic directions or how to partner more effectively with all divisions.
In addition, executives must have a solid understanding of the use of resources. Having a shared pool of centrally managed resources, such as administrative support or office equipment, can reduce costs and organization complexity.
Advantage
Divisions work well because they allow a team to focus on a single product or service, with a leadership structure that supports its main strategic goals.
Responsibility
This approach makes it much easier to assign responsibility for actions and results. In particular, a division is led by its own management group, which seeks the best interests of the division.
Competence
The divisional structure works well in markets where there is great competition, where local managers can quickly change the direction of their businesses to respond to changes in local conditions.
Culture
This structure can be used to create a common culture and esprit de corps at the division level, which better meet the needs of the local market.
This is better than having a product or service spread across multiple departments throughout the organization.
For example, a retail division might have a culture specifically designed to increase the level of service to customers.
Local decisions
The divisional structure allows decision making to move down the organization. This can improve the company's ability to respond to local market conditions, placing decision-making as close to the customer as possible.
Multiple offers
When a company has a large number of different product offerings or markets that it serves, and they are not similar, it makes more sense to adopt the divisional structure.
Velocity
This approach tends to produce quicker responses to local market conditions.
Disadvantages
A company made up of competing divisions could allow office politics, rather than sound strategic thinking, to affect its vision on matters such as the company's resource allocation.
cost
When a full set of functions is set up within each division, there are likely to be more employees in total than there would be if the company had been organized under a purely functional structure.
Also, there must still be a corporate organization, which adds more overhead to the business.
Scale economics
The company as a whole may not be able to take advantage of economies of scale unless purchasing is integrated throughout the organization.
Inefficiencies
When there are several functional areas spread over many divisions, no functional area will be as efficient as it would have been if there had been a central organization for each function.
Rivalries
The various divisions may not have any incentive to work together. They could even work cross-purpose, as some managers undermine the actions of other divisions for their own advantage.
Islands
All abilities are fragmented by division. For that reason it can be difficult to transfer skills or best practices across the organization. It is also more difficult to cross-sell products and services between divisions.
Strategic approach
Each division will tend to have its own strategic direction, which may differ from the overall strategic direction of the company.
Example
Examples of a divisional product line are the various car brands at General Motors. Likewise, the different Microsoft software platforms.
An example of a service line is the Retail, Business, Investment, and Asset Management branches of Bank of America.
ABC International
ABC International just posted sales of $ 300 million. For that reason, your manager decides to embrace a divisional organizational structure to provide excellent service to your clients. Consequently, it adopts the following divisional structure:
Commercial division
It focuses on all business customers and has its own product development, production, accounting, and sales employees.
Retail division
It targets all retail clients in the country and has its own product development, production, accounting, and sales employees.
International division
Focuses on all retail customers outside the country. Shares product development and production facilities with the retail division. It has its own accounting and sales employees.
see also finance and business knowledge
