The divisional organizational structure is a type of organizational structure that groups each organizational function into a division (Figure 1). Organizations can be structured in various ways, and the structure of an organization can determine the modes in which it operates and performs. The divisional structure is one structure with associated advantages and disadvantages.
The divisions within the divisional structure can correspond to products or geographies of the organization. Each division contains all the necessary resources and functions within it to support that product line or geography. A divisional structure organized by product departmentalization means that the various activities related to the product or the service are placed under the authority of one manager. Where the divisions might be luxury sedans or SUVs, as an example, the SUV division may have its own sales, engineering, and marketing departments distinct from the luxury sedan division. Geographic departmentalization involves grouping activities based on geography, such as Asia/Pacific or Latin American divisions.
There is also a common legal structure using the divisional structure called the multidivisional form, also known as "M-form.” In the multi-divisional form, there is one parent company that owns subsidiary companies that use its brand and name. The whole organization is ultimately controlled by central management, but most decisions are left to autonomous divisions. This structure of business is typically found in companies that operate worldwide; for example, the Virgin Group is the parent company of Virgin Mobile and Virgin Records, et cetera.
Some advantages of the divisional structure is that, if one division fails and collapses, it doesn't threaten the rest of the business, and also that the company is afforded more flexibility in operations. For the multidivisional structure with a parent company, the smaller companies benefit from the use of the brand of its parent.
Some disadvantages can include operational inefficiencies from separating specialized functions—for example, a few finance personnel in one division who do not communicate with those in another division. For the multidivisional structure, disadvantages can include increased accounting and tax implications.