What are the advantages disadvantages of divisional structures?

When looking at the subject of organisational structures, divisional structures are often a natural progression from functional structures.

What is a divisional structure?

• A divisional structure occurs when an organisation is structured in accordance with product lines or divisions or departments.

• They are headed by general managers who enjoy responsibility for their own resources.
• Divisions are likely to be seen as profit centres and may be seen as strategic business units for planning and control purposes.
• Some departments, e.g. accounts will be centralised.

Advantages & disadvantages of divisional structures

Advantages

• If an organisation wants to grow and diversify, the functional structure cannot cope, so instead the divisional structure should be adopted. Should the company want to diversify further, it is easy to 'bolt on' another division.
• It encourages growth and diversity of products, e.g. by adding additional flavours etc to capture other segments of the market. This in turn promotes the use of specialised equipment and facilities.
• Due to the breakdown of the company's activities into the divisions, it should mean that the divisional managers can clearly see where their area of responsibility lies and it should leave the top management free to concentrate on strategic matters, rather than to get involved in the day to day operations of each division - although this can lead to a lack of control over the activities of the division and possible lack of goal congruence.
• The focus of attention is on product performance and profitability. By placing responsibility for product profitability at the division level, they are able to react and make decisions quickly on a day to day basis.
• The role of the general manger has less concentration upon specialisation. This promotes a wider view of the company's operations.

Disadvantages

• In most divisionalised companies, some functions, e.g. accounting or human resources will be provided centrally. If this is the case, the cost of the centralised function could be recharged to those divisions using e.g. the human resource function. There are different ways of calculating the recharge and divisional managers may complain if the profitability of their division is reduced by an amount that they perceive as being arbitrary.

Geographical structures

• Grouping activities on the basis of location.
• Common in organisations that operate over a wide geographic area.
• Often, some departments e.g. accounts will be centralised.
• For example Kaplan.

Advantages

• Enables geographic growth - e.g can add a new division if the business expands into a new country

• Gives clear responsibility for geographical sales areas

• Good training of general managers, as each division will effectively function like a company in its own right

• Senior managers are thus freed to concentrate on group strategy

Disadvantages

• As for divisional structure above

Product v geographic divisional structure

Product divisionalisation is generally preferred over say geographic divisionalisation when the product is relatively complex and requires a high cost of capital equipment, skilled operators, etc., e.g. the car industry.

Organizational structures are frameworks used by companies to describe the flow of power and authority between various departments. It also classifies the professional activities performed to meet Company goals and objectives. Organizational structures vary from one company to another depending on various internal and external factors. The topic is ‘Advantages and Disadvantages of Divisional Organizational Structure’.

The divisional organizational structure divides the Company based on regions, products, or services. Each division has the same organizational structure as the next one. For instance, all Company branches report to the head office and have the same regional departments. Let us look at the advantages and disadvantages of this structure.

Advantages of a Divisional Organizational Structure 

Decentralization 

There is equal distribution of power and authority in all divisions; they all benefit from specialized departments. It improves the performance of individuals and teams. As a result, there is greater control and supervision since leaders can give maximum attention to their lean team. Decision-making is easier since protocols and access levels are few. 

Standardization 

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The divisions have similar departments, which ensure the execution of operations uniformly. Policies and procedures are developed and executed similarly. There is equal access and utilization of company resources. Similar departments in the various divisions carry all processes and activities. The divisions have equal rights and privileges. They also have equal power and authority. These similarities between the departments ensure equal performance.

Specialization 

The divisions have specialized departments to carry out their duties. Each department has a unique role to play and expertise. A division focuses on a specific product, service, or region. As a result, the teams have an in-depth understanding of the product, service, or region. It improves the performance and quality of services or products. It also relieves the next team from that set of tasks and makes them focus on other duties.

Efficiency 

Since each division has its own set of experts and activities, there is a smooth workflow. There is a saving of resources and time because there is no sharing. The teams can provide better quality services or goods as they are dealing with a smaller population. Furthermore, they focus on the products and services assigned to them only, which improves their concentration and understanding of the product or service. They can understand their target population better to increase sales revenue and customer satisfaction.

Effectiveness 

There is a reduction of workload because various departments exist in each division. They can produce the desired results using fewer resources and time because their focus is on one product, service, or region. It gives them a better understanding of the business environment and ways of overcoming challenges that may arise. The team has more impact on the market because it understands the products, services, and customer needs. 

Speed 

The divisions can accomplish their tasks quickly due to job segmentation and specialization. Each division and department focuses on a specialized area, product, or service. As a result, they complete related tasks effectively and efficiently. The departments’ process requests faster due to a smaller population, and they tend to understand staff problems better. It improves problem-solving abilities and approaches. 

Independent 

Permitting the divisional heads’ decision-making power gives them a lot of autonomy. The smaller workforce population enhances this since the problems are few and unique to them. Decisions and actions are more effective because the divisional head understands the internal and external forces that may affect their competitive advantage since the focus is on one product or service, which he has studied well. He also understands the customer’s needs concerning the product.

Productivity 

Efficiency and effectiveness characterized by this structure enhance productivity. The focus is on a smaller population, and specialization exists in each division. Divisional teams are lean groups, making communication and interaction better and faster. They can discuss and improve any flaws in the processes quickly. It ensures that mitigation measures are developed and implemented in the shortest time possible. It also reduces the chances of encountering business risks. 

Delegation 

The organization’s head is not overwhelmed with roles, responsibilities, and decisions because the tasks are at divisional levels. Respective managers tackle problems related to their team only. Each manager makes decisions and actions for their team. In addition, each division has its own set of departments that tackle issues related to their expertise areas. It reduces the number and frequency of problems reaching the organization’s head or head office.

Supervision 

There is keen monitoring and evaluation of the teams in each division. It is easier to supervise personnel and detect problems when dealing with a smaller staff population and not the entire organization. The divisional head can easily make rounds throughout his division to check on the progress of his teams. The various departments update him routinely. It is essential in identifying the status of operations and the workforce.

Disadvantages of a Divisional Organizational Structure

Expensive 

This structure is costly to develop and implement due to the high number of experts required. Each division replicates the required departments to perform operations. As a result, the Company hires the same cadre of qualified personnel in all their divisions instead of sharing duties. 

Absolute Power 

The divisional heads are autonomous while executing their daily duties. While this hastens decisions and actions taken by the division, it can create corruption. As quoted by many, “absolute power corrupts absolutely.” This level of independence can make the divisional leaders develop unethical practices since the head office or organizational head rarely monitor them. They may also bypass essential protocols, as they want to make quick decisions and actions. 

Duplication of Roles 

The divisions have similar departments with specialized personnel. The organization ends up with personnel with the same responsibilities, yet centralized shared units could tremendously reduce the costs. This enhances the efficiency and effectiveness of the organization; however, it is very expensive and can easily lead to a bloated workforce. The duplication of roles can also lead to conflict among the employees because they will overstep each other’s boundaries.

Competition 

This structure can create fierce and unhealthy competition as each division tries to outperform the other. The department in one division may want to prove that they have superior skills to their counterpart in the other division. The divisions might also want to show that they have better products or services when compared to the other divisions.

Reduced Teamwork 

The divisions and respective departments experience fierce competition from amongst themselves. It creates jealousy and enmity as each team tries to outperform the other. Lack of integration and cohesiveness reduces performance, profitability and yields negative publicity.

Bloated Workforce 

Divisions have similar departments, as stated earlier. They all perform the same functions in their respective divisions. It requires a high number of personnel to run operations since each division has to operate independently. It also leads to duplication of roles and responsibilities. 

Marginalization 

Divisions operate independently, and in some cases, they are in isolated geographical locations. The teams will tend to feel isolated from their colleagues and the entire organization. They also tend to focus on their products or services only. It makes them have no idea about the products or services offered by other divisions. This lack of information and communication isolates them further.

Inequality 

There is an uneven distribution of resources since different divisions have different requirements that help them promote their products or services. Some products or services may require more effort and resources to sell compared to others. In addition, divisions in different localities have varying operational expenses depending on the region and conditions. It forces the Company to allocate resources differently, which can lead to conflict among the divisional heads. 

Micromanaging 

The divisions have a smaller population, which makes supervision and monitoring frequent and better. It might demotivate the personnel since it appears to be micromanagement to them. The divisional leaders are constantly monitoring progress and identifying flaws to improve division performance. However, their teams can misunderstand this. 

Conclusion 

The divisional organizational structure segments the operations of the Company based on products or services. Each division has a specific product or service to manage and sell. The division is responsible for all the personnel and resources required to increase its productivity and performance. A division operates independently, even though there is an overall Company head or head office. There are respective managers in each of the divisions. They deal with problems affecting their teams at this level. All the divisions have similar departments or components, and the only distinguishing factor is the product or service they handle. This organizational structure has both advantages and disadvantages. The divisional organizational structure is suitable for specific industries due to the nature of the business and the large size of the Company. However, it is very costly to develop and implement due to the high number of personnel and resources required.

Frequently Asked Questions 

1. Which organizations can best apply the divisional organizational structure?

This structure is suitable for large-sized organizations that offer numerous products or services that require keen supervision.

Which of the following are advantages of divisional structure?

What are the advantages of adopting a divisional structure?

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