Divisional structure

Divisional structure belongs to a group of intermediate organizational structures. This is in essence a hierarchical structure with some organic structure characteristic: greater flexibility and greater diversity, suitable for diverse market conditions. Divisionalization of organizational structures is often called: federal decentralization.

Genesis of divisional structure

For the first time this type of organizational structure was introduced in the family-run company of P.S. Du Pont (in years 20th of the 20th century) and next at General Motors by A.P.Sloan (he has made decentralization of the structure through the segmentation of production according to socioeconomic characteristics of customers).

Fig. 1. Example of divisional structure

Divisional structure design

One of key features of this structure is decentralisation of powers and responsibilities. Divisionalization usually goes hand in hand with the grouping and extracting from the internal organization the largely independent units.

Divisions are relatively independent and autonomous and in some cases may even have legal personality (profit centres or cost centres). Managers of the divisions have decision-making powers for the functions most strongly affecting the success of their area of activities (production, supply and research and development).

Advantages and disadvantages of divisional structure

This structure is widely used in large economic organizations due to its many advantages. It allows to bring decision-making centres to places where are most problems to be addressed. So decisions are made faster, and a good knowledge of the environment makes it easier to make better choices. Important is also the fact that a significant proportion of managerial autonomy of the division and managers responsibility for the final result is very motivating for them.

But this structure also has some disadvantages. Extensive autonomy of divisional units can be the cause of conflicts between them and the head office and thus hinder coordination.

See also:

• Linear structure
• Organization types
• Principles and features of organizational structure

Examples of Divisional structure

• General Motors is a good example of a company that has adopted a divisional structure. The company is divided into five main divisions: GM North America, GM Europe, GM International Operations, GM South America, and GM Financial. Each division is responsible for its own operations and results, and reports to the CEO.
• Wal-Mart is another example of a company with a divisional structure. The company is divided into four main divisions: Wal-Mart US, Wal-Mart Canada, Wal-Mart International, and Sam's Club. Each division is responsible for its own operations and is managed by a separate executive team.
• Microsoft is also an example of a company that has adopted a divisional structure. The company is divided into four main divisions: Microsoft Office, Windows, Xbox, and Microsoft Azure. Each division is responsible for its own operations and is managed by a separate executive team.

Other approaches related to Divisional structure

A Divisional structure is just one type of organizational structure. There are several other approaches related to it, such as:

• Matrix Organization - in this type of structure, the organization is divided into multiple functional units, each with its own specialized area of responsibility. Matrix organizations also have a project or product-oriented structure, with teams having dual reporting relationships, to a functional and a product/project manager.
• Flat Organization - a flat organization structure has few layers of hierarchy, usually no more than two or three. This type of structure reduces bureaucracy and encourages collaboration.
• Network Organization - this type of structure is based on alliances and partnerships between organizations, rather than a formal hierarchical structure.

In summary, there are several other approaches related to a Divisional structure, including Matrix, Flat and Network organizations. Each of these structures provides its own benefits and drawbacks and can be used in different situations to meet the needs of an organization.

Divisional structure — recommended articles

Departmentalization — Organizational chart — Radial structure — Functional structure — Grouping of posts — Matrix structure — Hierarchical dependence — Linear structure — Tall organization

References

• Bao, T., & Wang, Y. (2012). Incomplete contract, bargaining and optimal divisional structure. Journal of Economics, 107(1), 81-96.
• Hoskisson, R. E., Hill, C. W., & Kim, H. (1993). The multidivisional structure: organizational fossil or source of value?. Journal of Management, 19(2), 269-298.
• Nedal M. Elsaid 1, Ahmed E. Okasha 2 & Abdalla A. Abdelghaly, Defining and Solving the Organizational Structure Problems to Improve the Performanceof Ministry of State for Environmental Affairs - Egypt, International Journal of Scientific and Research Publications, Volume 3, Issue 10, October 2013
• Riahi‐Belkaoui, A. (1998). The Impact of the Multi‐divisional Structure on Organizational Slack: The Contingency of Diversification Strategy. British Journal of Management, 9(3), 211-217.
• Riyanto, Y. E. (2000). Delegation of authority, managerial initiatives, and the design of divisional structure. Mimeo: University of Groningen.