A divisional structure is an organizational structure that groups employees into divisions based on products, services, or markets. Each division has its resources and functions and operates as a semi-independent entity. Divisional structures are businesses that hold separate divisions and run as semi-independent entities based on product lines, geographical territories, or market segments. Each division has its employees, who have the respective functions to run the division.
Many large organizations, including multinational corporations, have adopted the divisional structure. It enhance their overall performance by catering to diverse product lines and geographic markets. The structure promotes competitiveness among the managers because they must concentrate on the specific product lines or geographic areas of their divisions, free from the interference of other business units.
What is Divisional Structure?
The divisional structure is that kind of company organizational structure where a company divides its operations into semi-autonomous units based on product lines, regions, or customer segments. Every division is independent in some functions: each has a management team, resources, and operational strategy geared to fulfilling its mission or organization strategy. It is preferred largely by multinational companies that pursue many industries or geographical locations.
The organization uses these divisional advantages of efficiency, flexibility, and responsiveness. Each division has its team, and decision-making is faster; attention goes more to market considerations. On the contrary, in a functional structure, the grouping of employees is determined based on specialization, such as marketing, finance, or operations.
Advantages and Disadvantages of Divisional Structure
The pros and cons of a divisional structure. Companies must carefully evaluate those pros and cons to decide on the extent to which the divisional structure is appropriate.
The advantages and disadvantages of a divisional structure vary depending on the intent of the company and industry constraints. This model capitalises on better resource allocation with customer focus for firms with multiple products or operations in different parts of the world.
Advantages of the Divisional Structure
The distinctive characteristics of a divisional structure of an organization are very useful in deciding whether the organizational arrangement will support business operations. A worthwhile comparison is made between the divisional and functional structures to create key distinctions between the two complex structures in the reader’s mind.
- Flexibility and Specialization: Each division specializes in marketing and/or product lines, ensuring better specialization. Companies can aptly respond to market changes.
- Faster Decision-Making: Decision-making takes place without having to wait for approvals from higher management because of the semi-independent operation of each division.
- Better Customer Focus: Divisions design strategies that cater to their unique customer wants. Teams within a division focus on specific products, leading to better innovation and improvements.
- Clear accountability: Each division is responsible for its profitability and loss; hence is easy to measure performance.
Disadvantages of Divisional Structure
The advantages and disadvantages of divisional structures change with the type of industry and the company’s size. Divisional Structure has the following limitations.
- Higher Costs: Each division requires setting up its resources, thus duplicating efforts and increasing costs.
- Inefficient Coordination: Independent and competing Divisions can cause inefficiencies concerning resource utilization.
- Duplication of Efforts: Functional operations may be squandered by the company’s resources.
- Little Inter-Division Communication: Each division runs itself, resulting in slack intercommunication between divisions, affecting overall synergy.
- Internal conflicts. There might be competition for resources and customers, leading to disputes.
Divisional Structure Example
A divisional structure is usually entrenched in the overall organization complex by many successful companies to manage their operations. Here are famous specific companies:
- PepsiCo: Divided into beverages, snacks, and packaged foods. Each operates independently with its strategy.
- TOYOTA: Divided into divisions for hybrid cars, luxury cars (Lexus), and commercial vehicles.
- AMAZON: Has subdivisions like that of Amazon Web Services (AWS), Amazon Prime, and Amazon Marketplace.
- Procter & Gamble (P&G): One division per product category, such as beauty, health, and household.
Features of Divisional Structure of Organization
Such companies gain from the advantages offered by the divisional structure. For example, they gain market-specific advantages and increased decision power, but they also incur high costs and difficulty with internal coordination. These features help decide how a divisional structure operates for the organization. It helps a business properly assess whether the structure suits its goals.
- De-centralized operations: Each division operates independently and can control its functions. Different customer needs can be thoroughly satisfied since separate divisions operate for various types of customers.
- Product or market-based division: Companies have a certain grouping of operations based on a product line, a geographical area, or a customer. Divisions compete for resource mobilization and the market space, leading to innovation and growth.
- Separate P&L Responsibility: Each division has its budget, revenue targets, and profitability metrics. Since every division operates independently, there would be duplication of some functions.
- Independent Decision-Making: Divisional managers have the right to strategic and operational decisions. Business unit heads drive performance and growth divisionally with divisional management.
- Dedicated Resources: A separate marketing, finance, and production team is dedicated to each division. Companies can adapt to quick changes in the market and customer demands.
Difference Between Functional and Divisional Structure
Functional structure and divisional structure are two out of all organizational models. Here are some differences between these two: functional and divisional structures are two common organizational models. The table below highlights the key differences between them:
| Aspect | Functional Structure | Divisional Structure |
| Definition | Groups employees based on specialization | Groups employees based on products, regions, or customers |
| Decision-Making | Centralized at the top level | Decentralized at the division level |
| Focus Area | Efficiency and expertise | Market and product-based strategies |
| Flexibility | Less flexible | More flexible due to independent units |
| Communication | Strong within departments but weak across them | Limited between divisions, leading to coordination challenges |
| Cost Efficiency | Lower costs due to shared resources | Higher costs due to duplication of resources |
| Customer Focus | Less customer-centric | More customer-focused due to specialized divisions |
| Innovation | Slower innovation due to rigid structure | Faster innovation due to market-specific focus |
| Accountability | Shared accountability across functions | Clear accountability at the division level |
| Best Suited For | Small to medium-sized firms | Large organizations with multiple product lines |
Divisional Structure FAQs
1. What is meant by divisional structure?
Divisional structure is the structure of an organization based on which every company’s operations are divided at separate levels. Different divisions are made for one kind of product, region, or customer type. Each division is under its various resources and has to work separately for better efficiency and market responsiveness.
2. What are the benefits of divisional structure?
A divisional structure’s benefits include increased customer focus, speed of decision-making, specialization, and clear accountability. All these factors allow the company to serve multiple markets efficiently.
3. What are the disadvantages of divisional structure?
The disadvantages of the divisional structure include higher costs, duplication of resources, limited communication across divisions, and internal conflicts.
4. Is divisional structure suitable for small businesses?
Small businesses typically do not use a divisional structure, as this requires many resources; actually, it is much better suited for large businesses with many product lines.
5. How does a divisional structure differ from a functional structure?
Market-based divisions characterize the divisional structure, while functional structure organizes employees according to expertise. The divisional structure has more flexibility, while the functional structure ensures efficiency.
