Show
What is the Divisional Organizational Structure?The divisional organizational structure organizes the activities of a business around geographical, market, or product and service groups. Thus, a company organized on divisional lines could have operating groups for the United States or Europe, or for commercial customers, or for the green widget product line. Each such division contains a complete set of functions. Thus, the green widget division would handle its own accounting activities, sales and marketing, engineering, production, and so forth. This approach is useful when decision-making should be clustered at the division level to react more quickly to local conditions. The divisional structure is especially useful when a company has many regions, markets, and/or products. However, it can cause higher total costs, and can result in a number of small, quarreling fiefdoms within a company that do not necessarily work together for the good of the entire entity. Example of the Divisional Organization StructureABC International has just passed $250 million in sales, and its president decides to adopt a divisional organizational structure in order to better service its customers. Accordingly, he adopts the following structure:
Advantages of the Divisional Organization StructureThe key points in favor of the divisional structure involve placing decision making as close to the customer as possible. The advantages are noted below. AccountabilityThis approach makes it much easier to assign responsibility for actions and results. In particular, a division is run by its own management group, which looks out for the best interests of the division. CompetitionThe divisional structure works well in markets where there is a great deal of competition, where local managers can quickly shift the direction of their businesses to respond to changes in local conditions. CultureYou can use this structure to create a culture at the divisional level that most closely meets the needs of the local market. For example, a retail division could have a culture specifically designed to increase the level of service to customers. Local DecisionsThe divisional structure allows decision-making to be shifted downward in the organization, which may improve the company's ability to respond to local market conditions. Multiple OfferingsWhen a company has a large number of product offerings, or different markets that it services, and they are not similar, it makes more sense to adopt the divisional structure. SpeedThis approach tends to yield faster responses to local market conditions. Disadvantages of the Divisional Organization StructureThe key points against the divisional structure involve the cost of duplicating functions and a reduced focus on the overall direction of the company. The disadvantages are noted below. CostWhen you set up a complete set of functions within each division, there are likely to be more employees in total than would be the case if the business had instead been organized under a purely functional structure. Also, there must still be a corporate organization, which adds more overhead cost to the business. Economies of ScaleThe company as a whole may not be able to take advantage of economies of scale, unless purchases are integrated across the entire organization. InefficienciesWhen there are a number of functional areas spread among many divisions, no one functional area will be as efficient as would have been the case if there had instead been one central organization for each function. RivalriesThe various divisions may have no incentive to work together, and may even work at cross-purposes, as some managers undercut the actions of other divisions in order to gain localized advantages. SilosAll skills are compartmentalized by division, so it can be difficult to transfer skills or best practices across the organization. It is also more difficult to cross-sell products and services between the divisions. Strategic FocusEach division will tend to have its own strategic direction, which may differ from the strategic direction of the company as a whole. The organization of different departments or business units in a company What is Corporate Structure?Corporate structure refers to the organization of different departments or business units within a company. Depending on a company’s goals and the industry in which it operates, corporate structure can differ significantly between companies. Each of the departments usually performs a specialized function while constantly collaborating with each other to achieve corporate goals and values.  Departments in a company include Human Resources, IT, Accounting and Finance, Marketing, Research and Development (R&D), and Production. Some product-based or project-based companies may divide up business units by addressing a single product or project as a department. Types of Organizational StructureThere are four general types of organizational structure that are widely used by businesses all around the world: 1. Functional StructureUnder this structure, employees are grouped into the same departments based on similarity in their skill sets, tasks, and accountabilities. This allows for effective communications between people within a department and thus leads to an efficient decision-making process. Companies with departments such as IT and Accounting are good examples of a functional structure. 2. Divisional StructureThis structure organizes business activities into specific market, product, service, or customer groups. The purpose of the divisional structure is to create work teams that can produce similar products matching the needs of individual groups. A common example of the divisional structure is geographical structure, where regional divisions are built to provide products or services to specific locations. 3. Matrix StructureMatrix Structure is a combination of functional and divisional structures. This structure allows decentralized decision making, greater autonomy, more inter-departmental interactions, and thus greater productivity and innovation. Despite all the advantages, this structure incurs higher costs and may lead to conflicts between the vertical functions and horizontal product lines. 4. Hybrid StructureLike the Matrix Structure, the Hybrid Structure combines both functional and divisional structure. Instead of grid organization, Hybrid Structure divides its activities into departments that can be either functional or divisional. This structure allows the utilization of resources and knowledge in each function, while maintaining product specialization in different divisions. Hybrid Structure is widely adopted by many large organizations. Learning About a Company’s Corporate StructureWhen an FP&A analyst performs various analyses and financial modeling, corporate structure is often one of the first things taken into consideration, because how the departments are defined directly influences the construction of any model. 1. Corporate structure is the basis for building any financial modelsDepending on the kind of products/services a company provides or the industry it is in, its corporate structure can look very different from that of other businesses. Therefore, it is essential for the FP&A analyst to work closely with different business units in the company to understand their responsibilities and areas of expertise. The FP&A analyst should organize regular meetings and communicate consistently with the different business units to keep up with the latest trends in the market, new and existing projects, short-term and long-term work plans, and expected opportunities in the project pipeline. That way, not only can the analyst familiarize themselves with the ongoing activities in each team, they are also able to respond quickly to changes in budgets and forecasts with the latest information. 2. Businesses with functional or divisional structures tend to use straightforward modelingOut of the four organizational structures, functional and divisional structures are the easiest to build financial and forecasting models on, because of the simplicity of the companies’ departmental structure. An FP&A analyst can easily gather data, perform analysis and realize variances, identify data trends, and forecast future performance for each department. Sometimes, an FP&A analyst may drill down to as deep as each employee when collecting information for detailed analysis. Because all employees are in a single reporting relationship in a functional or divisional structure, the analyst can easily track individual performance, working hours, and expenditures. This helps in performing precise analysis on departmental costs, earnings, and productivity, without simply making a lot of assumptions. 3. Matrix structure companies may incur more estimations on various factorsIn a matrix structure, employees have dual reporting relationships, generally to both a functional manager and a division/product manager. This can lead to conflicts in resource utilization between a division and a function, making it more difficult to implement cost allocation because a single employee can be a member of two teams at the same time. Moreover, it is more challenging for an FP&A analyst to develop a perfect forecasting model for matrix structure companies because there are many resources overlapping and ambiguous reporting lines. Measuring employee productivity rates and project expenses may require some estimations on individual working hours spent on various products or projects. Other ResourcesThank you for reading CFI’s guide to Corporate Structure. The free CFI resources below will help broaden and deepen your understanding of how businesses actually operate.
What are the examples of divisional organizational structure?Divisional. In a divisional structure, people are grouped together based on the product or service they provide, not the work they do. For example, a large corporation such as General Electric has divisions for electronics, transportation, and aviation, each with its own team of accountants, marketers, etc.
Is Amazon a divisional structure?With so many variety products and services, Amazon has a divisional structure. In a divisional structure, dissimilar departments for variety products and services enable department heads to correctly focus their capital and results, as well as keep an eye on the organization's performance.
Is Apple a divisional structure?Apple is split into focused divisions. Each division has their own upper management and vice presidents.
Is Nike a divisional structure?Nike has a geographic divisional organizational structure. This structure is based on the company's needs in its global organization, as well as the uniqueness of conditions in regional markets. The following characteristics are notable in Nike's organizational structure: Global corporate leadership.
|
