BUSINESS

Divisional Structure: Examples, Advantages & Disadvantages

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The literal meaning of division is ‘an action performed to separate certain things into a number of parts’. We often see organizations divided into several groups on different grounds such as regional, product or service. Any organization that divides its employees and other resources into different groups based on regional and product differences, such that each group is responsible and answerable for its own actions, has a divisional structure.

For example, the electronics department of Samsung is completely responsible for its own actions. The smartphones department is responsible for its own actions. Moreover, a firm’s city division might be completely independent of its other city’s division. Each division would have its own advertising, sales, production, clerical, accounting, and development staff. The divisional structure tends to ease the tasks of each level of management. It becomes easier for them to evaluate staff and divisional performances and base their compensations on their success rate.

The picture above shows the model of a firm which is in the divisional structure. Its division is on the grounds of the type of product that is, consumer products, industrial products, and healthcare products. As it can clearly be seen, each division has its own marketing director, operations director, and finance director. None of the managerial staff is common among any divisions. Apart from the staff, each department has its own machinery, finance and all other resources required to run the process smoothly. A real-life example of the divisional structure is PepsiCo’s structure. There are several global divisions including North America Beverages (NAB), Frito-Lay North America (FLNA), Quaker Foods North America, Latin America, Europe Sub-Saharan Africa (ESSA) and Asia, Middle East & North Africa (AMENA). (“Global Divisions- PepsiCo”, 2018)

Advantages of Divisional Structure

Accountability

The divisional organizational structure allows each division of a firm to be accounted for in isolation. It can easily be seen which department is successful in making profits while which are bearing losses. Loss bearing divisions can be shut down completely while more investments can be made in profit earning divisions. This analysis is not possible when a firm is working in any other structures such as functional structures.

Team working

The divisional organizational structure allows people in a single division to interact with each other. When all of them are working towards a single goal, the success of their division, the motivation is higher than ever. The communication is much efficient, and everyone knows what the other person needs from them. For example, a finance department would know how much money is needed for a division’s research and development.

Responsiveness to external changes

When in a divisional organizational structure, a division focuses just on its own product, service or region. This helps them focus better on external factors that can affect their operations. Divisions become quicker in responding to external changes such as weather change, natural disasters, financial crisis, trade union matters and so on.

Organizational culture

Organizational culture is the values and the practices that persist in an organization. The divisional structure allows this type of culture to persist in a division. The organizational culture can help people interact better with each other. It also helps create bonds between them. A better understanding of each other helps in achieving the pre-set goals and targets, no matter how difficult they are.

Leadership

In the divisional structure, each division has its own leader. The leader sets goals along with his/her employees and works alongside them to achieve those goals. The direct control from the top leadership of the firm is no longer a necessity. The upper leadership can indulge in strategic decisions. Divisional leaders also become experts in their areas of work and work very efficiently.

Disadvantages of divisional structure

Small organizations

Divisional structure is not a possibility in small organizations. The organization may produce a variety of goods and services, and they might be operating in several regions, but they still do not have the resources to run so many different divisions and have the employees of same level in each division. This also causes duplication of work. All of this would increase the organization’s costs, and if the organization is small, it will not be able to bear the high costs and may go out of business.

Competition: healthy or not?

Competition is good until it becomes cruel. Healthy competition among divisions is good and bears good fruit for the entire organization, but when the competition becomes so severe that division heads start holding grudges against each other, it can be extremely harmful for the organization as a whole. Divisions would want other divisions to perform badly, instead of performing better themselves, in order to get past them and get the reward. The employees think themselves as a part of a certain division, but they forget that they are still a part of a much bigger organization.


Related products

Organizations producing products that are relation with each other might find it difficult to integrate divisions producing those complementary (related) products. For example, a smart phone manufacturer that also manufactures accessories for smartphones might find it difficult for their mobile phones and accessories divisions to stay on the same ground and integrate on their future prospects. As a result, organizations may bear heavy losses if the products in relation to each other are not effectively syncing.

Lack of communication amongst divisions

When divisions would not communicate amongst each other, they would not know each other’s objectives and goals. This lack of knowledge might hamper the organization in the form of extra taxes, fines, lack of finance available because a division might have spent extra on CSR (corporate social responsibility) and so on.

Economies of scale

Economies of scale are the cost savings when an organization produces goods or services in a large quantity. Divisional structure prevents organizations from getting the most out of economies of scale. As a single division does not produce enough to take great benefits out of the economies of scale.

Now that we have seen the advantages and disadvantages of the divisional structure, it is time that we evaluate whether to use it or not. A divisional structure can be extremely efficient and successful if practiced in a large organization. The communication barriers amongst divisions are low or non-existent and the need to react to external environment changes is high.

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