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Divisional Structures


 
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Divisional Structures

When looking at the subject of organisational structures, divisional structures are often a natural progression from functional structures.

What is a divisional structure?

  • A divisional structure occurs when an organisation is structured in accordance with product lines or divisions or departments.
  • They are headed by general managers who enjoy responsibility for their own resources.
  • Divisions are likely to be seen as profit centres and may be seen as strategic business units for planning and control purposes.
  • Some departments, e.g. accounts will be centralised.

Advantages & disadvantages of divisional structures

Advantages

  • If an organisation wants to grow and diversify, the functional structure cannot cope, so instead the divisional structure should be adopted. Should the company want to diversify further, it is easy to 'bolt on' another division.
  • It encourages growth and diversity of products, e.g. by adding additional flavours etc to capture other segments of the market. This in turn promotes the use of specialised equipment and facilities.
  • Due to the breakdown of the company's activities into the divisions, it should mean that the divisional managers can clearly see where their area of responsibility lies and it should leave the top management free to concentrate on strategic matters, rather than to get involved in the day to day operations of each division - although this can lead to a lack of control over the activities of the division and possible lack of goal congruence.
  • The focus of attention is on product performance and profitability. By placing responsibility for product profitability at the division level, they are able to react and make decisions quickly on a day to day basis.
  • The role of the general manger has less concentration upon specialisation. This promotes a wider view of the company's operations.

Disadvantages

  • In most divisionalised companies, some functions, e.g. accounting or human resources will be provided centrally. If this is the case, the cost of the centralised function could be recharged to those divisions using e.g. the human resource function. There are different ways of calculating the recharge and divisional managers may complain if the profitability of their division is reduced by an amount that they perceive as being arbitrary.

Geographical structures

  • Grouping activities on the basis of location.
  • Common in organisations that operate over a wide geographic area.
  • Often, some departments e.g. accounts will be centralised.
  • For example Kaplan.

Advantages

  • Enables geographic growth - e.g can add a new division if the business expands into a new country
  • Gives clear responsibility for geographical sales areas
  • Good training of general managers, as each division will effectively function like a company in its own right
  • Senior managers are thus freed to concentrate on group strategy

Disadvantages

  • As for divisional structure above

Product v geographic divisional structure

Product divisionalisation is generally preferred over say geographic divisionalisation when the product is relatively complex and requires a high cost of capital equipment, skilled operators, etc., e.g. the car industry.

Other types of structures

Further topics

Divisional performance management

 

Created at 6/20/2012 2:29 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
Last modified at 4/25/2013 3:19 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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ACCAPEDIA - Divisional Structures