Divisional structure

Divisional structure
See also
Strategic business unit Linear structure Centralized organizational structure Organizational chart Functional structure Staff structure Radial structure Project structure Tensor 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

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.