What Is Divisional Organizational Structure?
Divisional organizational structure represents a fundamentally different way of organizing by which members of the organization are grouped on the basis of products, services, customers, or geography. Thus, an organization structured within the framework of divisional structure has its activities designed based on common products or services, target customers, or geographic market.
The divisional structure, also called product or self-contained-unit structure, was developed at about the same time by General Motors, Sears, Standard Oil of New Jersey (now ExxonMobil), and DuPont. Although the divisional structure incorporates three different types of departmentalization—product, geographic, and customer—it is seen primarily at top levels or divisional levels in an organization.
In this organization structure, all or most of the resources and functions necessary to accomplish a specific objective are set up as a division headed by a product or division manager.
For example, General Electric has plants that specialize in making jet engines and others that produce household appliances. Each plant manager reports to a particular division or product vice president, rather than to a manufacturing vice president.
In effect, a large organization may set up smaller (sometimes temporary) special-purpose organizations, each geared to a specific product, service, customer, or region.
A typical division structure is illustrated in the Figure, below.
Divisional organizations, like all organization structures, have its share of both weaknesses and strengths. They may not have enough specialized work to use people’s skills and abilities fully. Specialists may feel isolated from their professional colleagues and may fail to advance in their career specialty. The structures may promote allegiance to department rather than organization objectives. They may also place multiple demands on people, thereby creating stress.
More advantages and disadvantages of divisional structures, as well as its contingencies, are cited below.
Advantages, Disadvantages, and Contingencies of Divisional Structures
- Recognizes sources of interdepartmental dependencies
- Fosters an orientation toward overall outcomes and clients
- Allows diversification and expansion of skills and training
- Ensures accountability by departmental managers and so promotes delegation of authority and responsibility
- Heightens departmental cohesion and involvement in work.
- May use skills and resources inefficiently
- Limits career advancement by specialists to movements out of their departments
- Impedes specialists’ exposure to others within the same specialties
- Puts multiple-role demands on people and so creates stress
- May promote departmental objectives, as opposed to overall organizational objectives
- Unstable and uncertain environments
- Large size
- Technological interdependence across functions
- Goals of product specialization and innovation