Divisional Structure

Definition

Divisional structure is an organizational structure where a company is divided into semi-autonomous divisions, each responsible for its own production, marketing, and profit. This structure allows for decentralized decision-making and increased responsiveness to local market conditions.

5 Must Know Facts For Your Next Test

1. Divisional structure is well-suited for large, diversified organizations operating in multiple markets or product lines.
2. Each division within a divisional structure has its own functional departments (e.g., marketing, production, finance) to support its specific operations.
3. Divisional managers have significant autonomy in decision-making, allowing them to respond quickly to local market conditions.
4. Performance evaluation and compensation in a divisional structure are often based on the profitability and success of individual divisions.
5. Coordination and communication between divisions can be a challenge in a divisional structure, requiring effective integration mechanisms.

Review Questions

• Explain how a divisional structure differs from a centralized organizational structure in terms of decision-making and responsiveness.
  • In a divisional structure, decision-making authority and responsibility are delegated to the managers of semi-autonomous divisions, allowing them to make decisions that are responsive to local market conditions. This decentralized approach contrasts with a centralized structure, where all major decisions are made at the top level of the organization, potentially limiting the organization's ability to adapt quickly to changing market demands.
• Describe the role of strategic business units (SBUs) within a divisional organizational structure.
  • Strategic business units (SBUs) are semi-autonomous divisions within a larger organization that have their own unique products, customers, and competitors. SBUs are responsible for their own profitability and are granted a significant degree of decision-making authority, allowing them to tailor their strategies and operations to the specific needs of their target markets. The SBU structure enables the larger organization to leverage the benefits of decentralization while maintaining some level of coordination and control.
• Analyze the potential challenges that a company may face when transitioning from a centralized to a divisional organizational structure.
  • Transitioning from a centralized to a divisional organizational structure can present several challenges. Coordinating and integrating the activities of semi-autonomous divisions may require the development of new communication and control mechanisms. Additionally, divisional managers may need to develop new skills and mindsets to effectively manage their own profit centers, which can be a significant shift from a centralized, functional structure. The organization may also need to invest in resources and infrastructure to support the increased autonomy and decision-making capabilities of the divisions. Effectively managing the cultural and behavioral changes associated with this transition is crucial for the success of the new divisional structure.

Related terms

Centralized Structure: An organizational structure where all major decisions and control are concentrated at the top level of the organization, with little autonomy given to lower-level units.

Decentralized Structure: An organizational structure where decision-making authority and responsibility are delegated to lower-level managers and divisions, allowing for more flexibility and responsiveness.

Strategic Business Unit (SBU): A semi-autonomous division within a larger organization that has its own unique products, customers, and competitors, and is responsible for its own profitability.