What is divisional structure? Discuss its advantages and limitations.
Divisional structure refers to an arrangement where activities are separated on the basis of products. There are different units and divisions which deal with varied products. Each division has its own divisional manager who supervises the whole unit and has the authority for it. Organisations that are large in size and deals in a diversified range of products or categories opt for this type of structure. Under each head of divisional structure, a functional structure develops itself, i.e. each divisional unit is further divided on the basis of its functions. For example, a company dealing with varied products have divisional heads such as clothing, shoes and electronics. Now these units will have further functional departments such as, under shoes, there will be resource inputs, advertising, production, sales, etc. Similarly, under clothing also there will be departments of resources, advertising, production and sales. The same will be under the electronics division. Here, each division has to take care about its profit and loss and is responsible for its own work.
Following are a few prominent advantages of a divisional structure.
(i) Managerial Efficiency: Divisional structure facilitates the development of the managers and the workers by providing them numerous opportunities. Along with product specialisation it also leads to development of the skills and knowledge of the working personnel. The divisional head gains experience as he deals with a vast variety of functions which he has to be responsible for. This helps him to grow and become more proficient in his working.
(ii) Gauging Performance: Under divisional structure each head is responsible for the profit and loss of his own division. This helps in clear identification of the performances by each department separately. Once the head is accountable for the revenues and costs of their own department, it becomes easier to gauge the actions of each. This also helps in taking corrective actions in case of poor performance.
(iii) Flexibility and Initiative: As under divisional structure, each division functions independently, decision making becomes quick. Once the departments are divided, the heads have the authority to take their own decisions whenever needed. This promotes initiative among the personnel as they are now able to take decisions at the right place and right time.
(iv) Growth: Under divisional structure expansion of an organisation becomes easier as new divisions can be easily added without affecting the functioning of other divisions.
A divisional structure has certain disadvantages as well. The following are some of the disadvantages of a divisional structure.
(i) Departmental Conflicts: Strife may arise among various divisions with regard to decisions and actions of organisation such as those relating to allocation of funds and resources. For example, suppose a company dealing in leather products such as shoes, bags, etc. decides to allocate the resource (workforce) to each department. Here, a conflict may arise among different division as which department gets more workforce.
(ii) Increase in Cost: Under divisional structure duplication of activities takes place. As there are same set of functions in each department, the probability of overlapping of activities occur. This results in a rise in cost for the organisation. For example, suppose there are two units of advertising in two different product divisions and they follow the same techniques of advertising. Now, although the products are different but still due to the same methodology, the cost to the organisation increases as the duplication of work takes place.
(iii) Ignorance of overall objectives: One of the disadvantages of having divisions is that in due course of time, there may be chances that the organisational goals take a back-seat. Divisional heads handling different units mainly focus on attainment of their own divisional objectives. This may lead to ignorance of the organisational objectives as a whole and in the race of getting ahead each department may target their own interests at the cost of the overall interests of the organisation.