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Divisional structures group various organizational functions into product or regional divisions.
Describe the basic premise behind divisional structures within the general framework of organizational structure
The divisional structure is a type of organizational structure that groups each organizational function into a division. These divisions can correspond to either products or geographies.
Each division contains all the necessary resources and functions within it to support that product line or geography (for example, its own finance, IT, and marketing departments).
A multidivisional form (or "M-form") is a legal structure in which one parent company owns subsidiary companies, each of which uses the parent company's brand and name.
The divisional structure is useful because failure of one division doesn't directly threaten the other divisions. In the multidivisional structure, the subsidiaries benefit from the use of the brand and capital of the parent company.
Disadvantages of divisional structure can include operational inefficiencies from separating specialized function. For the multidivisional structure, disadvantages can include increased accounting and taxes.
Organizations can be structured in various ways, with each structure determining the manner in which the organization operates and performs. A divisional organization groups each organizational function into a division.
Each division within this structure can correspond to either products or geographies of the organization. Each division contains all the necessary resources and functions within it to support that particular product line or geography (for example, its own finance, IT, and marketing departments). Product and geographic divisional structures may be characterized as follows:
Product departmentalization: A divisional structure organized by product departmentalization means that the various activities related to the product or service are under the authority of one manager. If the division builds luxury sedans or SUVs, for example, the SUV division will have its own sales, engineering, and marketing departments distinct from those departments within the luxury sedan division.
Geographic departmentalization: Geographic departmentalization involves grouping activities based on geography, such as an Asia/Pacific or Latin American division. Geographic departmentalization is particularly important if tastes and brand responses differ across regions, as it allows for flexibility in product offerings and marketing strategies (an approach known as localization).
A common legal structure known as the multidivisional form (or "M-form") also uses the divisional structure. In this form, one parent company owns subsidiary companies, each of which uses its brand and name. The whole organization is ultimately controlled by central management; however, most decisions are left to autonomous divisions. This business structure is typically found in companies that operate worldwide—for example, Virgin Group is the parent company of Virgin Mobile and Virgin Records.
Advantages of a Divisional Structure
As with all organizational structure types, the divisional structure offers distinct advantages and disadvantages. Generally speaking, divisions work best for companies with wide variance in product offerings or regions of geographic operation. The divisional structure can be useful because it affords the company greater operational flexibility. In addition, the failure of one division does not directly threaten the other divisions. In the multidivisional structure, subsidiaries benefit from the use of the brand and capital of the parent company.
Disadvantages of a Divisional Structure
Some disadvantages of this structure include operational inefficiencies from separating specialized functions—for example, finance personnel in one division do not communicate with those in another division. Disadvantages of the multidivisional structure can include increased accounting and tax implications.