Divisional Structure

Definition

Divisional structure is an organizational design where the company is divided into semi-autonomous divisions, each with its own functions and responsibilities. These divisions are typically based on product lines, geographic regions, or customer segments, allowing the organization to better respond to the unique needs and challenges of each market or product area.

5 Must Know Facts For Your Next Test

1. Divisional structure allows for greater responsiveness to local market conditions and customer needs, as each division can tailor its products, services, and strategies accordingly.
2. Each division within a divisional structure typically has its own functional departments, such as marketing, finance, and operations, giving it a high degree of autonomy and self-sufficiency.
3. Divisional structures often lead to duplication of resources and functions across divisions, which can result in higher overall costs for the organization.
4. The performance of individual divisions is typically measured by their own profit and loss statements, encouraging a focus on short-term financial results rather than long-term strategic objectives.
5. Divisional structures can create silos and reduce communication and collaboration between different divisions, which can hinder the organization's ability to leverage synergies and share best practices.

Review Questions

• Explain how a divisional structure can help an organization respond to changes in its external environment.
  • A divisional structure allows an organization to be more responsive to changes in its external environment, such as shifts in customer preferences, competitive threats, or market conditions. Each division can tailor its products, services, and strategies to the unique needs of its target market or geographic region, rather than having a one-size-fits-all approach. This flexibility and autonomy enables the organization to adapt more quickly to external changes, which can be a significant competitive advantage.
• Describe the potential challenges of a divisional structure and how an organization can address them.
  • One of the key challenges of a divisional structure is the potential for silos and reduced communication and collaboration between divisions. This can hinder the organization's ability to leverage synergies and share best practices. To address this, the organization can implement cross-functional teams, encourage regular communication and knowledge-sharing between division leaders, and establish clear mechanisms for coordinating strategic decisions and resource allocation across divisions. Additionally, the potential for duplication of resources and higher overall costs must be carefully managed through centralized oversight and efficient resource allocation.
• Analyze how the performance measurement and incentive systems in a divisional structure can influence the behavior and decision-making of division managers.
  • In a divisional structure, the performance of individual divisions is typically measured by their own profit and loss statements, which can encourage a focus on short-term financial results rather than long-term strategic objectives. This can lead division managers to prioritize actions that maximize their division's profitability, even if those actions are not aligned with the overall organizational goals. To address this, the organization should consider implementing a balanced scorecard approach that evaluates division performance based on a broader set of metrics, including customer satisfaction, innovation, and strategic alignment. Additionally, the incentive systems for division managers should be designed to reward behaviors and decisions that support the organization's long-term success, rather than just short-term financial performance.

Related terms

Functional Structure: An organizational structure where the company is divided into departments based on specialized functions, such as marketing, finance, and operations.

Matrix Structure: An organizational structure that combines elements of both functional and divisional structures, where employees report to both a functional manager and a product or project manager.

Decentralization: The process of distributing authority and decision-making power throughout an organization, rather than concentrating it at the top.