Divisional Structure

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What Is Divisional Structure?

A divisional structure is a system of organization where the employees are segmented into semi-autonomous units known as divisions. It is implemented to organize a company's operations into separate divisions or business units, each with its autonomous management.

Organizations with a wide range of products can be managed more easily with the help of divisions. Large businesses especially benefit from it because divisions enable them to segment their employees into manageable groups. Operating in smaller divisions enables more effective operations management and customer service. Even though it is a costly practice, it encourages accountability and transparency.

What Is Divisional Structure?

The divisional structure is based on segmentation by products, markets, or geographical variations and is well-suited for larger companies dealing with multiple products and markets.
Independent divisions operate autonomously under the supervision of the head office, with divisional managers overseeing functional units and having final authority over them.
While the divisional structure may lead to increased productivity and profitability, it can also be costly to implement and maintain.
The divisional structure allows for greater flexibility and responsiveness to local market conditions, as each division has its decision-making authority and can adapt to specific market needs.

Divisional Structure In Business Explained

The divisional structure is an organizational structure that works by segmentation based on products, markets, or geographical variations. It is best suited for big companies, especially those dealing in multiple products to serve multiple markets. The organization is split into smaller business units that handle the operations linked to certain goods or market regions. In other words, independent divisions (such as those for products or markets) are established under the general supervision of the head office.

Each division in this type of structure operates independently, except for how much revenue it intends to provide to the organization. The managers head the functional units. The divisional manager oversees and manages the operations of the division's numerous functional units and has final authority over the functional units. In addition to allocating finances, the organization's top management sets its objectives and creates policies.

Each divisional manager is free to control every aspect of the product, market segment, or local market. As a result, each division can be required to carry out several supporting tasks. A divisional structure can comprise two or more product, market, or territorial divisions.

Characteristics

One of the main characteristics of a divisional structure is decentralized authority. As a result, it helps managers make quick decisions and deal with issues specific to their divisions. Additionally, it gives the divisional managers a chance to take charge of situations that fall under their purview. However, due to the duplication of the accompanying functional units for the divisions, such a structure entails high financial expenditures. It also needs competent managers to oversee the many divisions and functional units.

Examples

Let's look into some divisional structure examples to understand the concept better:

Example #1

Suppose Daniel owns A.G. Electronics, a leading manufacturer and seller of electronic products. The company produces a range of electronics, including air conditioners and refrigerators, which are its two major products. In addition, A.G. Electronics has dedicated marketing and finance teams, each with its functions.

The organizational structure of A.G. Electronics, represented diagrammatically, can be as follows:

Note: This may again vary from company to company.

Example #2

Let's take the example of Apple Inc., an American multinational technology corporation.

Tim Cook serves as the CEO of Apple, and he oversees various team heads who are responsible for different functions within the organization. These team heads, including Eddy Cue as the Vice President of Services, Craig Federighi as the Senior Vice President of Software Engineering, and John Giannandrea as the Senior Vice President for Machine Learning and A.I. Strategy, along with other executives such as Deirdre O'Brien as Senior Vice President of Retail + People, Isabel Ge Mahe as Vice President and Managing Director of Greater China, and Tor Myhren as Vice President of Marketing Communications, are in charge of leading their respective divisions and achieving divisional goals, while managing the employees under them.

Apple's multidivisional structure is evident as each division serves a unique purpose, with specialized roles such as geographical specifications where products have specific features tailored for specific locations. All these senior vice presidents report directly to the CEO, forming a reporting chain that includes other divisional managers and employees who report to the managers. This chain of command showcases the hierarchical structure of the divisional organization within Apple Inc.

Advantages And Disadvantages

#1- Advantages

Product Specialization: Divisional heads can focus on tasks related to specific products, dedicating resources exclusively to their promotion and further research and development based on customer feedback.
Accountability: In a multidivisional structure, department heads can be easily identified and held accountable for costs and profits associated with their divisions.
Flexibility And Initiative: Each division is an autonomous unit focusing solely on assigned tasks, resulting in faster decision-making. External events can influence local decision-making, allowing quicker responses and improved divisional outcomes.
Expansion And Growth: Divisions can be added without interrupting existing divisions, with a divisional head and staff being the minimum requirements for establishing a new division.
Efficiency And Increased Performance: Divisions enable easier communication as they are smaller units, allowing employees to understand better the requirements to achieve goals. Resolving issues as they emerge divisionally relevantly can increase performance and profitability.

#2 - Disadvantages

Conflicts: Allocation of funds can be a source of conflict when one division is allotted more funds than others, particularly if it seeks to maximize its profits at the expense of others.
Increased Costs: Divisional structure can be costly. Manufacturing costs may not benefit from economies of scale due to the widespread distribution of resources and orders, resulting in higher production costs. Consumables and raw materials needed for manufacture may also add to the costs.
Duplication: There is a possibility of duplication of activities in product divisions with similar functions, resulting in overlapping tasks as each division works independently within the organization.
Competition: While healthy competition among divisions is expected, it may not always result in positive outcomes. Unhealthy competition among divisions to prove superiority can detract from organizational objectives. Additionally, greater autonomy for divisional heads could result in abuse of power.

Functional vs Divisional Structure

Key differences	Functional structure	Divisional structure
Meaning	Functional structure groups people according to expertise, such as placing all accountants under the accounting or revenue department.	A divisional organization organizes them across product or service lines, similar to having a marketing department for each specific product.
Suitability (about the size of the business)	A functional structure typically benefits smaller companies or those that offer specialized goods or services.	Divisional structures, which allow tailoring each region, division, or sector based on its offering, are typically advantageous for larger firms with various brands, goods, or services.
Costs	Since responsibilities and positions are shared around the organization and are duplicated less frequently, functional structures can be much cheaper.	Positions are repeated within divisional organizations, costing more money since resources are used twice.
Managerial autonomy	Under a functional organization, managers have less autonomy because top management makes most of the decisions.	Divisional managers are given a lot of authority within the divisional organization.

Frequently Asked Questions (FAQs)

What are some types of divisional structures?

Organizational divisional structures can be broadly classified into market-based, product-based, geographic, and matrix structures. Market division is based on different markets, the product-based structure is based on products, the geographic-based structure depends on the geographical locations, and the matrix structure involves a combination of functional and divisional structures.

How can a divisional structure be improved?

A few ways to improve organizational structures are fostering a sense of trust, promoting open communication, demonstrating management commitment and support, following through on initiatives, assigning clear responsibilities, maintaining consistency, and caring for employees' interests. However, the specific improvements may vary for each organization as every organization is different and may face different challenges. Hence, there are no "one-size-fits-all" solutions.

How does a bank divisional structure work?

Bank divisional structures are common in large banks with diverse operations and a wide range of products and services. They can facilitate efficient management of different business lines, foster innovation and specialization, and enable quick decision-making and response to changing market dynamics. However, they can also present challenges in coordination, communication, and maintaining consistency in operations and risk management across the different divisions.